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Marijuana Revenue May Exceed Expectations

  • Feb 21, 2014 | Gail Cole

 For some, legalizing pot is all about the tax revenue.

When Colorado and Washington voters approved the legalization of marijuana for recreational use, proponents spoke of revenue. Washington State initially estimated that state and local governments could gain as much as $1.9 billion from taxes on sales of pot over five fiscal years—or as little as $0 should federal authorities flex their muscles. Studies in Colorado predicted approximately $50 million of additional tax revenue annually.

This kind of talk has led Stephen Colbert to worry. If “the dope pushers” are telling us that pot “is the solution to all our fiscal problems,” what will they be willing to legalize and tax next? Yet many states are taking the revenue implications of legalization seriously. In addition to bringing in additional tax dollars, legalization would very likely lessen the amount state and local governments spend on law enforcement and incarceration. As a result, the nation is watching Colorado and Washington closely.

Colorado’s numbers

A budget proposal released earlier this week by Colorado Governor John Hickenlooper (R) suggests that revenue from the recreational pot industry is “far exceeding tax expectations” (Huffington Post). The request “totals 4.5 million for FY 2013-24 and $99.0 million for FY 2014-15” (Budget Proposal). That money will fund a variety of substance abuse prevention programs and programs for the prevention of marijuana in both minors and adults.

Doors opened for business in Colorado on January 1 of this year. Although exact figures for retail sales of weed have not yet been made public, the governor’s budget proposal suggests sales have been stronger than anticipated. As of this writing, Colorado has 163 retail stores, and the average price per ounce is higher than what forecasters predicted ($202 per ounce).

Governor Hickenlooper had this to say of the fledgling marijuana industry:

“Given the many uncertainties surrounding Marijuana Cash Fund projections and the potential need for additional funding for the Department of Revenue’s marijuana-related enforcement activities, this package represents a strong yet cautious first step toward ensuring a safe and responsible regulatory environment.”


Washington has not been as quick to enact legalization as Colorado—retail stores aren’t expected to open for business until June of this year, at the earliest.

The Washington State Liquor Control Board is limiting “the number of individual marijuana producer licenses to one [per applicant] and initially limit[ing] production at 70 percent.” The board has the right to do this because, with 2,858 marijuana producer applications submitted to the state by the December 20, 2013, deadline, the applications for marijuana production exceed two million square feet. The agency may now start issuing licenses to producers and processors of recreational marijuana.

Even with the limited number of producers, state officials have estimated “that legalized recreational marijuana could bring in $51 million to the state’s general fund in the 2015-17 biennium,” assuming stores open in June 2015 (Capitol Record). That figure rises to approximately $138 million for the 2017-19 budget. Excise tax and license fees account for almost half of that revenue –“the rest is expected to come from retail sales tax and business taxes.”

The 2015 start date was used because of “concerns over local moratoriums and bans on pot sales and general uncertainty about how the system will work.” Indeed, this is the first time recreational marijuana has made it into an official Washington State budget forecast. Steve Lerch, chief economist of the Economic and Revenue Forecast Council, told lawmakers earlier this week that he and his staff have “been reluctant before this forecast to include marijuana tax revenues in general fund projections because of the uncertainties about the retail stores, including when the stores would launch and the potential for marijuana businesses to have problems with banks.”

Already, several local communities have banned recreational marijuana businesses, and the state attorney general upheld their right to do so in a January 16, 2014 opinion.

Who’s next?

Will other states follow the example of Washington and Colorado? Time will tell. Some of the current conversations about legalizing marijuana for recreational use are listed below:

  • New York State: medical marijuana remains illegal but proponents of the Marijuana Regulation and Taxation Act speak of the $3 billion industry that could raise revenue for job training programs, re-entry programs and substance abuse programs.
  • New Hampshire: the House of Representatives became the first legislative entity to approve the legalization of recreational pot; however, the governor of the Live Free or Die State has vowed to block it.
  • Maryland: gubernatorial candidate Heather Mizeur touts the money legalizing and taxing weed could bring to the state—approximately $157 million annually.
  • Rhode Island: lawmakers have introduced a bill to legalize, regulate and tax recreational marijuana. It’s the fourth year in a row such legislation has been proposed—thus far to no avail. Why the push? Democratic Senator Josh Miller says Rhode Island “desperately needs new revenue sources.”

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.