Adult-Use Cannabis Generates Over $20B in State Tax Revenue

Revenue generated by adult-use cannabis markets in the U.S. is showing its true impact on the economy. According to a report by the Marijuana Policy Project (MPP), adult-use cannabis markets have generated over $20 billion in tax revenue since launching in Colorado and Washington a decade ago.

A Decade of Legalization

In November 2012, Colorado legalized marijuana for adults over age 21 by passing Amendment 64 to the Colorado Constitution. Washington state followed suit with a ballot initiative during the same month. Legal markets launched shortly after, and data on states that have implemented adult-use cannabis markets has been monitored by the MPP since 2014.

“Legalizing cannabis for adults has been a wise investment,” the report reads. “Since 2014 when sales began in Colorado and Washington, legalization policies have provided states a new revenue stream to bolster budgets and fund important services and programs. Through the first quarter of 2024, states have reported a combined total of more than $20 billion in tax revenue from legal, adult-use cannabis sales. In 2023 alone, legalization states generated more than $4 billion in cannabis tax revenue from adult-use sales, which is the most revenue generated by cannabis sales in a single year. In addition to revenue generated for statewide budgets, cities, and towns have also generated hundreds of thousands of dollars in new revenue from local adult-use cannabis taxes.”

State-by-State Analysis

The report details tax revenue collected in each individual state, noting which state markets are not yet operational. Washington’s tax rate is among the highest in the nation, at a whopping 37% at retail with a 6.5% sales tax.

“Twenty-four states have legalized cannabis possession for adults 21 and older. All but one of them—Virginia—have also legalized, regulated, and taxed cannabis sales. In two legalization states—Delaware and Ohio—sales have not begun yet.”

Economic Benefits of Legalization

The economic benefits that come from legalizing adult-use cannabis should be one of the movement’s greatest selling points, the report mentions.

“It is important to note that the financial impact of legalizing and regulating cannabis for adult use is one of the many benefits of legalization,” the report concludes. “Adult-use cannabis legalization has also displaced the criminal market and freed up law enforcement resources to focus on serious crime. In legalization states, authorities actually know who is selling cannabis, where it is being sold, when, and to whom, because cannabis is produced and sold by legitimate, tax-paying businesses instead of drug cartels and criminals. Hundreds of thousands of individuals have been spared traumatic arrests, possible incarceration, and criminal records that shut the door of opportunity. Meanwhile, teenagers’ cannabis use rates haven’t increased, and voter support has grown.”

The full report, “Cannabis Tax Revenue in States that Regulate Cannabis for Adult Use,” is available from MPP.

Aligning with Federal Data

The data aligns with tax revenue numbers released by the federal government in October 2023. The combined totals reveal that states with reported cannabis excise sales tax numbers totaled out to $5.7 billion since Q3 of 2021.

A report published by the U.S. Census Bureau recently shows the progress of cannabis tax revenue numbers for each state. It’s the first report of its kind from the bureau and begins with Q3 2021.

“The Quarterly Summary of State and Local Government Tax Revenue provides quarterly estimates of state and local government tax revenue at a national level, as well as detailed tax revenue data for individual states,” the report explains. “The information contained in this survey is the most current information available on a nationwide basis for government tax collections.”

Historical Revenue Data

It aligns with predictions the MPP released last year, according to a report on May 1, 2023 with data regarding cannabis tax revenue generated by states with legalization. Between 2014 and the end of 2022, the report shows that states had collected over $15.1 billion in tax revenue.

Tax revenue from 2022 alone showed more than $3.77 billion collected, which was actually the first year that total state cannabis tax revenues decreased in comparison to 2021 with $3.86 billion. Even with seeing mature cannabis states collecting a decreased amount in cannabis tax revenue and newer states collecting an increased amount, MPP notes that the numbers are influenced by sales comparisons from the pandemic.

The 2023 report also includes a year-by-year total of collected tax revenue as well. In 2014, tax revenue reached $68,503,980 and 2018 was the first year that cannabis tax revenue passed the billion mark at $1,308,693,928.

MPP’s reports show the true potential that adult-use cannabis can bring in the form of tax revenue, highlighting the significant economic benefits and the broader positive impacts of legalization on society.