Having just legalized marijuana, four more states will collect many millions more in taxes. The yes vote reflected an increasingly positive view of pot that has been led by a younger demographic:
Meanwhile, the dollar total for legal marijuana sales (2015) far exceeded Girl Scout Cookies and Oreos (2014) combined:
Together, marijuana approval and sales have meant a tax bonanza that Napoleon III would have predicted. Urged to prohibit all smoking, he reputedly laid down his cigar and said, “This vice brings in one hundred million francs in taxes every year. I will certainly forbid it at once–as soon as you can name a virtue that brings in as much revenue.”
Marijuana Tax Revenue
Marijuana generated tax dollars have been considerable. One reason is sky high tax rates. Below, tax rates are the percents. While not necessarily precise, they provide an accurate estimate.
- Colorado: 29%
- Washington: 37%
- Oregon: 17%
And now, based on election results, we can add…
- California: 15%
- Nevada: 15%
- Massachusetts: 3.75%
- Maine: 10% (but there might be a recount because the election was close)
For a slightly different perspective, I’ve included a map. Arizona has the “X” because voters said no to legalization. If you are interested in the details, a chart after “Our Bottom Line” has much more.
Our Bottom Line: Elasticity and Substitutes
Assessing the efficacy of pot taxes takes us to two economic concepts.
Seeing a 30% tax rate, I predicted a lid on sales and less than expected tax revenue. I was wrong. More inelastic than I would have thought, the quantity buyers demanded responded minimally to elevated prices.
Still though, state officials are worried about the black market. Defined as substitute goods, illegal and legal marijuana could share a market. As a result, when the price of one is too high, the demand for the other increases. For that reason, Colorado is reducing its sales tax.
My sources and more: Always good for a statistical picture, Pew Research had the marijuana opinion polls. For the industry perspective, I recommend Marijuana Business Daily and for the state, this Interview with Colorado’s governor. Meanwhile, if you just read one article, go to Bloomberg and you might add the Tax Foundation for all the data.