Nearly 80 years has gone by since the US enacted the Marijuana Tax Act of 1937, requiring cultivators, prescribing physicians, pharmacists, and users of Marijuana pay a tax. By the time the Marijuana Tax Act was over turned in 1969, marijuana had been widely accepted as an illegal drug by a majority of the population.
The outright federal banning of marijuana would’ve been considered unconstitutional, so the U.S. government created marijuana tax stamps as a method of regulating and controlling the production, distribution, and sales of cannabis. While this did slow the production of cannabis, it was the penalties for not paying the taxes that endowed both legitimate judiciary action and a powerful deterrent upon marijuana users ($2,000 fine, up to 5 years in prison).
On top of this, once cannabis had been outlawed at the federal level, many of the states had adopted marijuana tax stamp laws of their own, allowing them to charge offenders with tax evasion along with a possession charge.
It’s not surprising that the act was overturned on the grounds it was unconstitutional, requiring self-incrimination, as it was quite clear that the real goal was not to generate marijuana tax revenue but rather to use the marijuana tax stamps to accumulate additional charges against marijuana offenders.
While the Marijuana Tax Act has been repealed at the federal level, there are currently twenty states that maintain individual marijuana tax stamps and laws regarding them, including four states that have medical marijuana (two of which just legalized recreational). While the prospect of getting black market marijuana dealers to pay taxes is a powerful idea, given excess amounts of taxes being collected in states that have legalized the herb, it also can be seen as legitimizing a black market activity, and don’t forget it incriminates you.
Marijuana Tax Revenues to Fund
The growth of the retail marijuana market, unlike its medical brother, had been deemed more socially palatable when the taxes collected are earmarked for social services (like schools, roads, infrastructure, rehabilitation, etc). Unlike marijuana tax stamps, these taxes are entirely to produce marijuana tax revenue from sales, cultivation, and distribution rather than to levy additional charges.
While not every state that has legalized recreational marijuana includes a high excise tax on the product, there is a variety of ways that the state has taxed the cultivation, transfer, and sales of marijuana. Let’s take a look at a few of the nine states that have voted to legalize recreational use and sales of marijuana, and how they intend to:
- Collect the Marijuana Tax Revenue
- Allocate the marijuana tax revenues
Legalizing marijuana for adults in 2014, Alaska opted for a different tax structure than Colorado or Washington, asking for $50/ounce be paid by retailers from manufacturers and suppliers. While Alaska does not have marijuana tax stamp laws, of the marijuana tax revenues collected nearly half are earmarked for a prison program designed to reduce recidivism. Beginning in 2017, the state anticipates using marijuana tax revenues in the following ways:
- 24% to the Department of Corrections Substance Abuse Treatment Program
- 10% of marijuana tax revenues go to community residential centers
- 33% for the Department of Health and Social Services Behavioral Health Treatment and Recovery Fund
- 33% in the pocket of the Department of Public Health and Safety’s Council on Domestic Violence and Sexual Assault
California legalized marijuana in late 2016. California does not carry marijuana tax stamp laws, but rather is set to fund a variety of public works and interests after administrative costs with all marijuana tax revenues. The taxes are collected on distribution from the supplier to the retailer at a rate of $9.25/oz for flower and $2.75/oz for leaves. Additionally, there is a 15% tax added to the retail sales.
- $2 million annually to the UC San Diego Center for Medical Cannabis Research
- $10 million annual to public universities in CA for the next 11 years to fund studies on the societal impact
- $3 million each year for the next 5 years to the Department of California Highway Patrol for developing protocols for dealing with marijuana related driving
- $10 million annually, increasing by $10 million annually till @ $50 million annually to local health departments for mental health, job placement, substance abuse, and linkages to medical treatment in populations disproportionately affected by past drug policy
- Any remaining marijuana tax revenues are to be dispersed to further public health and substance use education programs.
The first state to implement a recreational marijuana market, Colorado has been the leading example when it comes to creation, implementation, execution, and evolution of policy regarding legal marijuana. While Colorado remains free of marijuana tax stamp laws, the taxes imposed on recreational sales include 10% additional sales tax and a 15% excise tax, creating a total tax of 27.9% in Denver, when you include the local sales tax of 2.9%.
- The 10% sales tax is used in the administration of the Marijuana Enforcement Division (85%) and given to local governments to aid in the regulation (15%), this will be reducing to 8% in July 2017
- The first $40 million dollars raised annually from the 15% excise tax is given to the BEST program, a grant program that provides needed equipment and upgrades to Colorado schools. Anything exceeding $40 million is transferred to the state public school fund.
The commonwealth of Massachusetts passed recreational sales of marijuana in 2016, joining Maine as the recreational lighthouses for weary east-coast marijuana fans. Interestingly, they had an utterly simplified tax set-up in the legalization legislation (aside from the fact that the state does still carries marijuana tax stamps). They impose an additional 3.75% excise tax to cover administrative costs, permitting local municipalities to enforce up to an additional 2.00% tax to cover costs.
So as you can see, marijuana taxes key in how many states get the legislation to pass, offering large amounts of collected marijuana tax revenues to public health services, education, and local governments for research and administration.
By Joey Wells