Behind every legalization bill is a comprehensive plan to tax and collect revenue from cannabis. This comes as no surprise as U.S. cannabis sales reached $37.4 billion in 2021. And by 2030, economists predict that states will have collected up to $12 billion in tax revenue for legal cannabis sales.
In the last two years, the pandemic caused states with depleted budgets to consider new sources for revenue. States like Ohio, Maryland and South Dakota kicked off their legislative sessions by working to get cannabis legalization bills on this year’s ballots. They will join Arizona, Connecticut, Montana, New Mexico, New Jersey, New York and Virginia as states that have legalized adult-use cannabis since 2020.
States are responsible for determining their own respective cannabis tax plans as there is no federal guidance or collective approach to the subject. Since cannabis taxes are levied differently based on jurisdictional laws, product stage and category, this guide adds clarity to what cannabis taxes look like in 2022.
How is cannabis taxed?
There are three main cannabis excise tax rates: percentage-based, weight-based and potency-based.
Tax by percentage
Percentage-based taxes are similar to general sales taxes where consumers pay the tax along with the product’s final price. Whether or not some states levy this tax at the wholesale level for retailers, the price is usually passed on to consumers. In Colorado, the tax rate is 15% for retail sales and 15% for the first transfer of cannabis from a wholesaler to a processor or retailer.
Tax by weight
The weight-based tax is levied on the wholesale price of cannabis and is paid for by the cultivator or distributor. This excise tax is typically built into the final price of products for consumer purchase. Also, weight-based taxes vary by product category. For instance, in Alaska, the excise tax is $50 per ounce of premium flower, $15 per ounce for stems and leaves and $25 per ounce of immature flower and buds.
Tax by potency
Just as liquor is taxed higher than beer, concentrates are taxed higher than flower. Potency-based taxes are based on THC content; the higher the THC, the higher the tax. Right now, Illinois and Connecticut are the only states that levy potency-based taxes on cannabis products. But New York regulators announced there will be a similar potency-based tax system in place for distributors.
States may also levy an additional sales and/or local tax on top of the above excise taxes.
Tax rates for medical and recreational cannabis
Excise taxes were commonly known as “sin” taxes for a reason. They work to dissuade the public from purchasing certain goods - in this case, recreational cannabis - by increasing the price through taxes. States that have legal cannabis markets might levy an excise tax on top of a locality tax, which could drive the price of cannabis through the roof. However, these states ought to be careful; high-priced regulated cannabis is all the reason for a black market to thrive.
Here’s a breakdown of the recreational tax rates by state:
Alaska: $50 per ounce for flowers of mature buds; $25 per ounce for immature or abnormal buds; $15 per ounce for trim; flat rate of $1 per clone; local taxes may also apply.
Arizona: A 16% excise tax and a 5.6% sales tax. Local sales tax rates apply.
California: A 15% excise tax on retail sales and a 7.25% state sales tax. A cultivation tax of $10.08 per ounce for flowers; $3.00 per ounce for leaves; and $1.41 per ounce of fresh plant. Local taxes may also apply.
Colorado: A 15% excise tax and a 15% retail sales tax. Local excise and sales taxes may apply.
Connecticut: An excise tax of 0.625 cents per milligram of THC for
cannabis flower; 0.9 cents per milligram for other product types; 2.75 cents per milligram for edibles; and a 6.35% retail sales tax plus 3% municipal sales tax.
District of Colombia: Possession is permitted but sales and distribution are prohibited.
Illinois: Cultivation privilege tax is 7% of the gross receipts from the sale of cannabis by a cultivator or craft grower to a dispensing organization. A Cannabis Purchaser Excise Tax is 10% of the purchase price – cannabis with THC level at or below 35%; 20% of the purchase price for all cannabis-infused products; 25% of the purchase price for cannabis with a THC level above 35%; and 6.25% state sales tax. Local jurisdictions can impose a Municipal Retailers’ Occupation Tax up to 3% (up to 3.75% in unincorporated areas of a county).
Maine: A retail excise tax of 10% and a state sales tax of 5.5%. The following only applies to cultivation: A $335 per pound excise tax on flower; an excise tax of $94 per pound for trim; an excise tax of $1.50 per seedling; and an excise tax of $0.30 per seed.
Massachusetts: A 10.75% excise tax and a 6.25% state sales tax. Local taxes may also apply.
Michigan: A 10% excise tax and a 6% state sales tax.
Montana: A 20% excise tax for retail.
Nevada: A 15% wholesale excise tax; a 10% retail tax/consumer sales tax and a 6.85% state sales tax. Local sales taxes may also apply.
New Jersey: A 6.625% sales tax rate. Local sales taxes up to 2% may also apply.
New Mexico: A 12% excise tax (increasing annually beginning in 2025 to 18%). Cannabis purchases will also be subject to state and local gross receipts taxes ranging from 5.125% to 8.6875%, depending on the location.
New York: A tax of 0.5 cents per milligram of THC for flower; a tax of 0.8 cents per milligram of THC for concentrates; a tax of 0.3 cents per milligram of THC for edibles; a retail tax of 9% and a statewide 4% local tax.
Oregon: A 17% retail tax; local sales taxes may also apply.
Vermont: A 14% excise tax and a 6% state sales tax; local sales taxes may also apply.
Virginia: A proposed 21% retail sales tax for all products sold through dispensaries; a 6% standard sales tax; optional local sales tax up to 3% may also apply. The framework is still being created by the current legislature.
Washington: A 37% excise tax on retail sales and a 6.5% state sales tax. Local sales taxes may also apply
On the medical side, tax rates may differ due to the medicinal classification of cannabis. For instance, in Colorado and California, medical cannabis is exempt from all excise taxes, but not state or local taxes.
Here’s what medical cannabis taxes look like per state:
Arizona: A 5.6% state tax; local taxes may also apply.
Arkansas: A 6.5% statewide sales tax and a 4% privilege tax; local taxes may also apply.
California: A 15% cannabis excise tax; local taxes may also apply.
Colorado: A 2.9% state sales tax; local taxes may also apply.
Connecticut: A 6.35% statewide retail sales tax.
Delaware: A gross receipts tax rate for revenue over $1.2 million ranging from 0.0945% to 0.7468%.
District of Columbia: A 5.75% sales tax.
Florida: A 6% statewide retail sales tax.
Hawaii: A 4% statewide retail sales tax and a 4.5% on Oahu.
Illinois: A 1% statewide sales tax on qualifying drugs and a 7% tax for distributors and cultivators.
Iowa: A 6% retail sales tax. Local taxes may also apply.
Louisiana: A 5% statewide sales tax.
Maine: A 5.5% statewide sales tax and an 8% tax on edibles.
Michigan: A 6% statewide sales tax.
Missouri: A 4.225% state sales tax and a 4.225% state use tax. Local taxes may also apply.
Montana: A 4% excise tax.
Nevada: A 4.6% statewide sales tax.
New Jersey: Currently 2%, to reach 0% on July 1, 2022.
New York: A 7% medical marijuana excise tax.
North Dakota: A 5% statewide sales tax.
Ohio: A statewide sales tax between 6.5% and 7.25%.
Oklahoma: A 4.5% statewide sales tax and a 7% medical cannabis excise tax. Local taxes may also apply.
Pennsylvania: A 5% excise tax for cultivators on gross receipts from the sale of medical cannabis.
Rhode Island: A 7% statewide sales tax.
Here are some states that do not impose a sales tax on medical cannabis:
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