The Tax Foundation: States Projected to Post Higher Marijuana Revenues in 2021

With several states contemplating legalization of recreational marijuana, and federal lawmakers starting the process of federal descheduling, it is a good time to examine the tax implications of legalization. Taxes play a crucial role in the success of marijuana reform, as competitive prices in a licensed market are key to convert illicit consumption to the legal market.

Marijuana legalization has been gaining momentum at the state level in recent years, partially because of the prospect of new tax revenue. In 2021 alone, four states (Connecticut, New Mexico, New York, and Virginia) have passed bills to legalize. Thus far, 19 states’ voters or legislatures have passed legislation to offer licenses to sell recreational marijuana as well as impose excise taxes. Most of those states also apply their general sales tax to cannabis sales, and some allow localities to levy additional taxes.

While it is still a relatively new market (Colorado was the first state to legalize cannabis in 2012), excise tax revenue figures to date can help lawmakers get a sense of the revenue potential at different rates and contribute to the development of sound marijuana tax policy.

The following table shows the states that levy excise taxes on marijuana. It includes the tax design, final revenue in fiscal year (FY) 2020 and estimated revenue for FY 2021, and revenue per capita generated in the same fiscal years. In total, states with licensed markets collected $1.7 billion in FY 2020 from state-level excise taxes.

Note that these numbers do not include sales tax or local tax revenue from marijuana transactions.

State Marijuana Tax Collections Continue to Grow
Collections in States with Operational Markets in FY 2020 and FY 2021
State Tax Design Tax Rate Revenue FY 2020 Revenue Per Capita FY 2020 Projected Revenue FY 2021 Projected Revenue Per Capita FY 2021
Alaska Specific $50/oz. mature flower; $25/oz. immature flower; $15/oz. trim; $1 per clone $24,540,009 $33.55 $29,051,904 $39.71
California Mixed 15% retail excise tax; $9.65/oz. flower; $2.87/oz. leaves cultivation tax; $1.35/oz cannabis plant $525,943,734 $13.31 $757,482,335 $19.17
Colorado Ad valorem 15% excise tax (levied at wholesale by weight at average market rate); 15% excise tax (retail price) $307,278,327 $53.36 $410,584,023 $71.30
Illinois (b) Potency (ad valorem) 7% excise tax of value at wholesale level; 10% tax on cannabis flower or products witd less tdan 35% tdC; 20% tax on products infused witd cannabis, such as edible products; 25% tax on any product witd a tdC concentration higher tdan 35% $52,698,873 $4.16 $315,645,689 $24.91
Massachusetts Ad valorem 10.75% excise tax (retail price) $51,684,592 $7.50 $104,428,106 $15.15
Michigan (c) Ad valorem 10% excise tax (retail price) $31,364,000 $3.14 $75,000,000 $7.51
Nevada Ad valorem 15% excise tax (levied at wholesale by weight at Fair Market Value); 10% excise tax (retail price) $105,180,947 $34.15 $153,227,327 $49.75
Oregon Ad valorem 17% excise tax (retail price) $133,150,349 $31.57 $175,106,330 $41.52
Washington Ad valorem 37% excise tax (retail price) $468,502,946 $61.52 N/A N/A
(a) Average collections used to project full year collections. Full FY2021 available in Colorado and Illinois. Data missing for Q2 2021 in Nevada and California. Missing June 2021 data in Alaska, Oregon, and Massachusetts. For Michigan, tde projection is tde state’s May forecast, as Michigan’s fiscal year runs from October to September. No data available for Washington.
(b) Illinois started collecting taxes in January 2020.
(c) Michigan started collecting taxes in December 2019.
Source: State Revenue Departments, Tax Foundation calculations.

In FY 2020, California led the way with the highest marijuana excise tax revenue of $526 million, followed closely by Washington and Colorado, which collected $469 million and $307 million, respectively. While not all data is yet available, those three states are also expected to have generated the largest revenue in FY 2021.

Both Washington and Colorado have ad valorem excise tax designs for marijuana, meaning the tax is based on the value of marijuana. Washington has a 37 percent tax rate on the retail value of marijuana while Colorado levies a 15 percent tax on both wholesale and retail. An ad valorem tax is contrasted with a specific tax, which is based on a per-unit basis. California’s marijuana tax design is mixed, combining an ad valorem tax and specific taxes. It has a 15 percent tax on marijuana retail value and taxes flowers at $9.65 per ounce, leaves at $2.87 per ounce, and fresh plants at $1.35 per ounce.


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