States collected $2.7 billion in recreational pot taxes in 2020

Ten states that have legalized the use of marijuana for recreational purposes collected almost $2.7 billion in taxes on pot products last year as sales surged and more regulatory structures came online.

A new report from the Marijuana Policy Project, a pro-legalization group, estimates that states have collected a total of $7.9 billion in tax revenue since the first states — Washington and Colorado — began allowing recreational pot sales in 2014.

Tax revenue generated by marijuana sales have showed substantial year-over-year growth in every state that has voted to legalize recreational use. Those sales took off in 2020, when Americans stuck at home purchased more marijuana for use during the lockdowns.

California, the nation’s most populous state, has become the largest legal marijuana market. Recreational sales began in 2018, but growth lagged because of sustained interest in the grey market of medical marijuana providers that continued serving a large number of customers.

But California’s government collected more than $1 billion in recreational marijuana taxes last year, according to figures from the state Department of Finance. Tax revenues were up 62 percent over 2019.

Washington collected $614 million in marijuana tax revenue last year, not counting millions more in local taxes levied by cities and towns where recreational pot is sold in retail establishments. Washington collected a higher amount of tax revenue from legal marijuana than the state did from alcohol in both the last two fiscal years.

In Colorado, budget officials counted $362 million in marijuana taxes in 2020, up from $279 million the year before. Oregon tallied $158 million in pot taxes, and Nevada collected $123 million, much of which was diverted to the state’s rainy day fund.

Massachusetts voters approved recreational marijuana in 2016, and by last year the state raked in $118 million in taxes. Michigan approved recreational pot in 2018, and the state pulled in $81 million in tax revenue last year. Illinois, which only began retail sales in 2020, made $174 million on the tax revenue in the first full year of sales.

Early signs suggest 2021 is going to be another banner year for recreational sales. In Illinois, tax officials say they collected $119 million in revenue between January and April, or about two-thirds of last year’s total in just the first third of the year. Officials in Massachusetts have also collected more than half their total from last year in just the first few months of the new year.

Marijuana tax revenue is about to begin filling coffers in other states, too: Sales have only just begun or are set to begin soon in Vermont, Arizona, New Jersey, Montana, South Dakota, New York, New Mexico and Virginia, all states where revenue data is not yet available.

States tax marijuana revenues at far higher rates than they do most other products. Washington taxes marijuana products at 37 percent, compared to a retail sales tax of just 6.5 percent. Oregon, which does not have a sales tax, taxes pot products at 17 percent. 

In California, pot products are subject to a $9.25 per ounce tax on flowers or $2.75 on leaves and trim, along with a 15 percent excise tax and on top of the state’s 7.25 percent standard sales tax.