The Tax Foundation published a report last year claiming that the Colorado marijuana tax was not keeping funds in the state. The report also claimed that the revenues were going to off-set marijuana related arrests.
If you’re a regular reader of this blog, you might remember that I’ve been a proponent of marijuana legalization for about as long as I’ve been a fan of free markets and libertarian economics. So perhaps it’s no surprise that I’m also a believer in the positive economic benefits of legal marijuana. In Colorado, where marijuana has been legal for adults 21 and over since 2012, the state has collected more than $134 million in taxes and fees in the past five years. There have been over 90,000 legal marijuana sales (mostly by licensed retailers) and over $1 million in sales taxes collected.Since 2012, when Colorado voters passed Amendment 64 legalizing the first recreational marijuana market for adult use in the United States, total sales in the state have surpassed $10 billion. This is not only a huge success and proof of concept for the future of the American cannabis industry, but also billions in tax revenue for the state of Colorado. In the past six years, the 100-year-old state has collected more than $1.6 billion in marijuana taxes and fees – and that’s just at the state level. This untapped stream of tax revenue was the deciding factor for Colorado voters in the decision to legalize recreational cannabis in 2012. So the question is how Colorado has spent this new tax revenue over the past six years. To answer this question, we need to look at Amendment 64. The text of the document states that Colorado will impose a 2.9 percent sales tax on medical and recreational marijuana and a 15 percent excise tax when the cannabis passes from producer to seller. The 2.9% sales tax on medical marijuana goes entirely to the Marijuana Tax Fund. Under Amendment 64, the first $40 million or 90 percent, whichever is greater, would be allocated to a capital grant program under which schools, districts, and various educational institutions could apply for funds to construct new buildings or renovate existing facilities. A special recreation sales tax of 15%, net of the local share, goes into the state general fund. A portion will be deposited in the Department of Education’s public school fund, while the rest goes into the marijuana tax cash fund. Since retail legalization in 2012, 16.4% of the marijuana tax fund budget has been used for education initiatives. According to the Colorado Sun, the legislature has also allocated $25 million to help school districts implement all-day kindergarten programs. Marijuana taxes fund school maintenance and construction, but they don’t solve the problem of per-pupil funding in Colorado. Virtually none of these taxes go to school operating budgets, including teacher salaries, textbooks, and school supplies. But in 2018, more than $20 million was spent on grants for school health workers, early literacy programs, and dropout and bullying prevention. Interestingly, more than $2.2 million of this fund went to the state’s Department of Agriculture to fund regulation of industrial hemp and the state’s seed certification program. Remember, Amendment 64 legalized industrial hemp in Colorado two years before the 2014 Farm Bill did the same at the federal level. Each Colorado jurisdiction distributes marijuana tax revenue differently. Between 2014 and 2019, approximately $29 million of Denver’s marijuana-related tax revenue was spent on marijuana regulation and enforcement. Another $16 million was spent on youth prevention. Until 2017, these were the only areas outside the general fund that were allocated for marijuana taxes. After 2017, $16 million went to affordable housing, $3.1 million to opioid control, and $19 million to capital improvements in the city. Local governments that allow the sale of marijuana set local taxes. As Colorado’s largest city and with so many dispensaries per capita, Denver has collected the highest adult marijuana tax in the state. Since January 2014, the city has collected more than $294.5 million in marijuana-related tax revenue. Some of this money was spent on infrastructure improvements in the city, but most went to state revenue reimbursement, regulation and enforcement, and marijuana prevention for youth. While it can be argued that tax revenue from marijuana sales in Colorado is a small portion of the state budget, it must be admitted that this source of tax revenue did not exist ten years ago. As is now the case in many states, millions of dollars worth of untaxed transactions have taken place on the black market. Colorado has pioneered the legal, commercial adult drug use market, which generates billions of dollars in taxes for the state. When you look at the hockey stick projections of the value of the cannabis industry in the U.S. over the next decade, and consider that Colorado posted record revenues in 2020, it’s clear that we’re only scratching the surface of future revenues. Between the growing market, the hope of reforming federal cannabis policy, and the removal of the stigma surrounding the plant, we are still in the early stages of the industry’s development in the United States. The future looks very, very good.
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