Cannabis taxes have become a major revenue stream for U.S. states with legal cannabis markets. In 2023 alone, states with operational cannabis markets generated a staggering $3.73 billion in state sales tax from cannabis sales. As more states legalize cannabis, understanding these taxes across different states has become increasingly important for both businesses and consumers.
This guide offers a comprehensive overview of cannabis taxes by state, while also exploring their impact on consumers, businesses, and state revenues.
What Are Cannabis Taxes?
Cannabis taxes are government-imposed levies on the sale, cultivation, and distribution of cannabis products. These are often referred to as cannabis excise taxes, which are taxes specifically applied to certain goods – in this case, cannabis. The tax rates can vary between states, and typically fund public services, such as health initiatives, education programs, and other community services. As of September 2024, 21 states imposed a cannabis tax, and 16 states levy a general sales tax in addition to these excise taxes.
Types of Cannabis Taxes
Cannabis taxes are structured in different ways depending on the state. These taxes are categorized into three types:
- Percentage-of-Price Tax: Similar to a general sales tax, this type of cannabis tax is calculated as a percentage of the retail price and added to the customer’s total at checkout. The retailer then remits these taxes to the government.
- Weight-Based Tax: With this system, the amount of tax is determined by the weight of the cannabis product. The tax rates tend to vary depending on the part of the cannabis plant being taxed, with more potent parts like the flower usually taxed at higher rates. The responsibility for remitting these taxes falls on the cultivator, rather than the retailer.
- Potency-Based Tax: This type of tax is calculated based on a cannabis product’s level of THC. Products with higher THC levels are typically taxed at higher rates to discourage the consumption of more potent cannabis products while also generating more tax revenue.
The Impact of Cannabis Taxes
On Consumers
Cannabis excise taxes directly influence the retail price of cannabis products since they’re typically added at the point of sale. Higher excise taxes can impact affordability, especially for low-income individuals and those with limited disposable income. These higher cannabis prices may drive consumers to buy cannabis from the black market rather than through legal dispensaries. This affordability issue can reduce state tax revenue and increase the risk of buying products that aren’t regulated or tested for quality or safety.
On Businesses
For businesses operating in a state with high cannabis excise taxes, they may experience reduced profit margins, limited growth opportunities, and a higher overall cost of doing business. Because of this added hurdle, these businesses should consider strategies to offset the impact of high taxes, such as:
- Vertical Integration: Owning multiple stages of the cannabis production process can help reduce costs and improve efficiency.
- Cost-Cutting Measures: Implementing cost-saving initiatives, such as energy efficiency upgrades or streamlined operations.
- Tax Planning: Working with tax professionals to identify potential tax deductions and credits.
- Lobbying for Tax Reform: Advocating for lower excise tax rates or other tax-related reforms.
On State Revenue
Cannabis excise taxes can be a large source of revenue for legalized states, contributing billions of dollars nationwide to state budgets. Many states choose to use this extra revenue to fund a range of state programs and services, including:
- Education Funding: Allocating funds to support public schools and higher education institutions.
- Healthcare Programs: Funding programs to address substance abuse, mental health, and other health-related issues.
- Infrastructure Improvements: Investing in roads, bridges, and other public infrastructure projects.
- General Fund Support: Contributing to the state's general fund to support various government services.
Cannabis Taxes by State
Now that we’ve covered the basics of cannabis taxes, let’s dive into each state’s tax structure, so you know what to expect when buying, selling, or cultivating cannabis.
Alaska
Alaska’s weight-based cannabis tax is collected on the first sale from a licensed cultivator to a manufacturer or retailer, with varying rates for different parts of the plant. The state’s tax rates are:
- Flower: $50 per ounce
- Immature or Abnormal Bud: $25 per ounce
- Trim: $15 per ounce
- Clones: $1 each
Additionally, local governments may also impose their own excise taxes, either percentage-of-price or weight-based.
Arizona
Arizona levies a 16% excise tax on cannabis sales, paid by consumers and remitted by retailers. There are no local cannabis taxes in addition to the state excise tax.
California
California levies a 15% excise tax on cannabis sales, paid by consumers and remitted by retailers. Local governments can also levy additional taxes, either based on the square footage of cannabis operations or as a gross receipts tax on cultivators, distributors, and retailers.
Colorado
Colorado levies a 15% excise tax on cannabis sales, paid by consumers and remitted by retailers. Additionally, cultivators must pay a 15% weight-based tax, which is calculated by multiplying the crop's weight by the state-set "retail marijuana average market rate" and then applying the 15% tax rate. Colorado does not have local cannabis taxes.
Connecticut
Connecticut’s potency-based tax is paid by consumers and remitted by retailers. The state’s tax rates are:
- Cannabis Plant Material: 0.625 cents per milligram of total THC
- Edibles: 2.75 cents per milligram of total THC
- Other Products: 0.9 cents per milligram of total THC
Local governments in Connecticut may also impose a 3% tax on retail cannabis sales.
Delaware
Although cannabis sales have not yet started in Delaware as of September 2024, the state’s legislation levies a 15% excise tax on cannabis sales.
Illinois
Illinois levies a 7% excise tax on cultivators’ monthly gross receipts and a potency-based tax on retail sales collected by retailers. The potency-based tax rates are:
- THC under 35%: 10% excise tax
- THC over 35%: 25% excise tax
- Cannabis-Infused Products (e.g. edibles): 20% excise tax
Local governments in Illinois can levy additional excise taxes. The maximum local excise taxes are up to 3% for municipalities and 3.75% for counties. However, if both are applied, then they’re capped at 3% each for a total of 6%.
Maine
Maine levies a 10% excise tax on cannabis sales, paid by consumers and remitted by retailers. Additionally, cultivators must pay weight-based taxes at a rate of:
- $335 per pound of cannabis flower
- $94 per pound of cannabis trim
- $1.50 per immature cannabis plant or seedling
- $35 per mature cannabis plant
- $0.30 per cannabis seed
Maine does not have any local cannabis excise taxes.
Maryland
Maryland levies a 9% excise tax on cannabis sales, paid by consumers and remitted by retailers.
Massachusetts
Massachusetts levies a 10.75% excise tax on cannabis sales, paid by consumers and remitted by retailers. Local governments in Massachusetts may impose an additional 3% tax.
Michigan
Michigan levies a 10% excise tax on cannabis sales, paid by consumers and remitted by retailers. Michigan does not have local cannabis taxes.
Minnesota
Although cannabis sales have not yet started in Minnesota as of September 2024, the state’s legislation levies a 10% excise tax on cannabis sales.
Missouri
Missouri levies a 6% excise tax on cannabis sales, paid by consumers and remitted by retailers. Local governments in Missouri can impose an additional tax of up to 3%.
Montana
Montana levies a 20% excise tax on cannabis sales, paid by consumers and remitted by retailers. In this state, local governments can impose an additional tax of up to 3%.
Nevada
Nevada levies a 10% excise tax on cannabis sales, paid by consumers and remitted by retailers. Additionally, cultivators must pay a 15% weight-based tax that’s calculated using the crop’s weight multiplied by the state-set “fair market value at wholesale.” Nevada does not have any local cannabis taxes.
New Jersey
In New Jersey, all retail cannabis transactions are subject to a sales and use tax of 6.625% plus a social equity excise fee of one-third of 1%. In addition, cultivators must pay a weight-based tax of $1.10 per ounce for all parts of the plant. Local governments in New Jersey can also impose a gross receipt tax of up to 2% on all cannabis businesses, including cultivators, manufacturers, wholesalers, and retailers.
New Mexico
New Mexico levies a 12% excise tax on cannabis sales, paid by consumers and remitted by retailers. Starting on July 1, 2025, this excise tax will be increasing in 1% increments up to a maximum of 18% by July 1, 2030. New Mexico does not have any local cannabis taxes.
New York
New York levies a 9% state excise tax plus a 4% local excise tax for a total of 13% on cannabis sales, paid by consumers and remitted by retailers. As of June 1, 2024, New York no longer imposes a potency-based cannabis tax for distributors, changing it to 9% of the wholesale price sold to retailers. For registered organizations or microbusinesses that sell recreational cannabis products directly to retail customers, this 9% rate is only imposed on 75% of the final retail price.
Ohio
Ohio levies a 10% excise tax on cannabis sales, paid by consumers and remitted by retailers. Ohio does not have any local cannabis taxes.
Oregon
Oregon levies a 17% excise tax on cannabis sales, paid by consumers and remitted by retailers. Local governments in Oregon can impose a cannabis tax of up to 3%.
Rhode Island
Rhode Island levies a 10% state excise tax and a 3% local excise tax for a total of 13% on cannabis sales, paid by consumers and remitted by retailers.
Vermont
Vermont levies a 14% excise tax on cannabis sales, paid by consumers and remitted by retailers. In Vermont, there are no local cannabis taxes.
Virginia
Although cannabis sales have not yet started in Virginia as of September 2024, the state’s legislation levies an 8% state excise tax plus a 1.125% sales tax on cannabis sales. Local governments in Virginia can impose an additional cannabis tax of up to 2.5%.
Washington
Washington levies a 37% excise tax on cannabis sales, paid by consumers and remitted by retailers. This state does not have any local cannabis taxes.
Key Takeaways on Cannabis Taxes
There’s no doubt that cannabis taxes have become a substantial source of revenue for state governments across the U.S. Each state’s cannabis tax structure impacts not only state tax revenue but also the cost and accessibility for consumers and businesses. Whether you’re a cannabis enthusiast, business owner, or stakeholder, staying up-to-date on cannabis taxes is an essential part of budgeting and staying compliant.
Looking for a way to cut costs and streamline your cannabis business’ operations? KayaPush is an all-in-one people management software designed for the cannabis industry. Book a demo with us today to experience the power of an integrated system.
