Colorado recently passed the five-year mark. It's been five whole years since voters in the state opted to legalized marijuana use for those of us age 21 and up. Though recreational marijuana dispensaries did not open in Colorado till the beginning of 2014, the ballot measure, titled Amendment 64, had built in a formula for tax revenue deposition. That is, we knew before recreational sales revenues started pouring in where the tax revenue collected from those sales would be distributed in the state and, in at least one circumstance, exactly how much of those revenues would be spent.
Breaking Down Each Weed Purchase
Colorado marijuana laws allow for adults 21 and up to purchase as much as one ounce (28 grams) of fresh cannabis, eight grams of marijuana concentrate, or 800 mg of edible marijuana products in any single purchase. Each of these items has a different price tag, yet the overall tax revenue collected on their sales is proportional to each individual item and the sum total.
Here’s how it works:
Colorado State Sales Tax:
The effective sales tax rate on purchases in Colorado is 2.9% as of 2017. In the three previous years, both medical and recreational marijuana purchases were subject to the state sales tax. Beginning on July 1st, 2017, the Colorado Legislature had fully implemented Senate Bill 17-267, a bill removing Colorado state sales tax from the purchase of recreational marijuana. The 2.9% sales tax is, however, collected on medical marijuana sales in Colorado.
Colorado Retail Marijuana Sales Tax:
The sale of recreational marijuana at Colorado dispensaries, no matter which city or town the dispensary you visit resides in, incurs a 15% special marijuana sales tax. While tax revenue from marijuana purchases are no longer being added through the collection of state sales taxes, the Colorado legislature saw fit to increase the State Retail Marijuana Sales Tax Rate to 15%, up from 10% in years previous. Medical marijuana sales are excluded from this tax.
Colorado Retail Marijuana Excise Tax Rate:
Tax revenue from marijuana is also generated at the point of purchase between growers and producers and their retail sales or manufacturing counterparts. Any time a grower sells their product to a dispensary or edible/concentrate producer, the plant components sold are subject to a 15% excise tax. The value of the plant ultimately depends on the type of product being sold. In Colorado, the state first calculates the Average Market Rate (AMR) for a specific part of the cannabis plant, allowing for a uniform collection of tax revenues. Currently, these are defined as:
- Marijuana bud
- Trim/ Shake
- Immature plants
- Whole plant, non-dried
- Marijuana seeds
- Marijuana allocated for extraction
Though this is not a tax paid directly on sales at the consumer side, it surely has an impact on the price of marijuana in Colorado.
So, Where Do the Excise Tax Revenues Go?
Marijuana taxes, as we've seen, are collected through two main mechanisms: The Retail Marijuana Sales Tax and the Retail Marijuana Excise Tax, both set at 15%. As specified by Amendment 64, the first $40 million collected each year from the excise tax is to be distributed to public schools. Excise tax revenues collected in excess of $40 million would be similarly dispersed to helping fund and maintain construction projects on public school grounds across the state, ultimately bringing aid funding to two separate grant programs administered by the Colorado Department of Education.
The first $40 million in excise tax revenues is dedicated to the Public School Capital Construction Assistance Fund, administered by the Building Excellent Schools Today (BEST) grant fund. The fund prioritizes construction or renovation of school facilities to better accommodate their faculty and students' needs.
In both 2015 and 2016, excise tax revenues on marijuana sales exceeded $40 million by $2.5 million and $31.6 respectively. These excise tax revenues are deposited in the Colorado Public School Fund.
And the Marijuana Sales Tax Revenues?
Marijuana sales tax revenues in Colorado help to fund everything from statewide or local enforcement to awareness and prevention programs in schools. The 15% rate collects tax revenues on recreational marijuana sales only, not medical. Of the total collected throughout the year, 85% is kept at the state level for enforcement and administration of the recreational marijuana program, while the remaining 15% is dedicated to local enforcement and oversight of the program.
All tax revenue collected on the sale of recreational marijuana is deposited first into the Marijuana Tax Cash Fund (MTCF) before being allocated to various funds throughout the state, covering everything from education to healthcare. In 2017, for instance, the Colorado Joint Budget Committee Appropriations Report set aside for the year roughly $20 million for various public school programs. This includes:
- $11.9 million to the School Health Professionals Grant Program
- $4.3 million to the Early Literacy Competitive Grant Program
- $2 million to the School Bullying Prevention and Education Grant Fund
- $2 million for the Office of Dropout Prevention and Student Re-Engagement
The Colorado recreational and medical marijuana industries have been and will continue doing great things for both consumers and communities throughout the state. And this may be exactly the motivation other states need to develop cannabis legalization programs of their own.
Article by: Joey Wells