Sales of adult-use marijuana generated more than $3.7 billion in tax revenue for states with legal recreational cannabis in 2021, according to a recent report from the nonprofit Marijuana Policy Project. The figure, which marks a 34% increase in adult-use cannabis tax revenue over the previous year, represents taxes on recreational marijuana sales only and doesn’t include medical cannabis tax revenue; application and licensing fees paid by cannabis businesses; income taxes generated by employees in the cannabis industry; or corporate taxes paid by licensed adult-use marijuana companies to the federal government.
“Our report is further evidence that ending cannabis prohibition offers tremendous financial benefits for state governments,” Toi Hutchinson, president and CEO of the Marijuana Policy Project, said in a statement from the group. “The legalization and regulation of cannabis for adults has generated billions of dollars in tax revenue, funded important services and programs at the state level, and created thousands of jobs across the country. Meanwhile, the states that lag continue to waste government resources on enforcing archaic cannabis laws that harm far too many Americans.”
The MPP report includes updated 2021 tax revenue figures for all states that have legalized and regulated adult-use marijuana. The report also reviews each state’s adult-use cannabis tax structure and population data. The cannabis policy reform advocacy group noted that in states with legalized recreational marijuana, taxes on adult-use cannabis sales can be dedicated to community services and social programs, including funding education initiatives such as new school construction, early literacy programs and public libraries. States have also used the tax revenue to provide services such as “bullying prevention, behavioral health, alcohol and drug treatment, veterans’ services, conservation, job training, conviction expungement expenses, and reinvestment in communities that have been disproportionately affected by the war on cannabis, among many others,” MPP noted in its report.
18 States Have Legalized Adult-Use Cannabis
As of this year, 18 states have passed statutes to legalize, tax and regulate adult-use cannabis for residents 21 and older. Of them, eight states passed their marijuana legalization laws in 2020 or 2021, six of which haven’t yet launched regulated sales. The MPP report noted that several “other states are building strong momentum to legalize adult-use cannabis in 2022, including Maryland, Missouri, Ohio, Rhode Island and South Dakota.”
California was by far the biggest recipient of the windfall in adult-use marijuana tax revenue, with the nearly $1.3 billion in weed taxes collected in the Golden State accounting for nearly a third of the total for all states in 2021 combined. Under California law, much of the cannabis tax revenue is earmarked for local community nonprofit organizations. As of April 2021, the state had distributed nearly $100 million to local organizations that serve the communities and individuals harmed by cannabis prohibition. And in June 2021, the Governor’s Office of Business and Economic Development announced another 58 grants totaling $29.1 million awarded to community-based nonprofit organizations across the state.
The state of Washington collected the second-highest amount of adult-use cannabis tax revenue, recording a total of $630 million last year. In the 2019 and 2020 fiscal years, state officials reported that revenue from the 37% cannabis retail tax outpaced revenue from the Washington state alcohol tax, despite the fact that many more adults consume alcohol than cannabis. For every $1 billion in revenue collected from the cannabis sales tax, nearly $600 million is funneled into public health initiatives, including a fund that provides health insurance for low-income families.
Colorado, the first state to launch sales of adult-use cannabis, rounded out the top three states with nearly $400 million in adult-use cannabis tax revenue, bringing the total for the state to approximately $1.8 billion since 2014. As of March 2022, $538.7 million of the total revenue generated from recreational marijuana taxes is dedicated to improving Colorado’s public school system.
$11 Billion Since 2014
The adult-use cannabis tax revenue reported by MPP shows how far the industry’s contribution to the public coffers has grown since the onset of legalization. In 2014, Washington and Colorado became the first states with legal sales of adult-use cannabis. The first year, Colorado brought in an estimated $46 million in recreational marijuana tax revenue, growing 819% to $423 million in 2021. In 2014, Washington received about $22 million in adult-use cannabis taxes, a figure that rose to $480 million in 2021. As of last month, states reported a combined total of $11.2 billion in tax revenue from legal, adult-use cannabis sales since 2014.
Tax revenue generated by adult-use cannabis sales is likely to continue increasing for years to come as more states reform their marijuana laws and permit regulated sales. According to a report by Fortune, earlier this month cannabis industry resource MJBiz estimated that combined sales of medical marijuana and adult-use cannabis will eclipse $33 billion this year.