When it comes to taxes, as a recreational marijuana user you probably pay more in taxes than anyone else. Think about it: In the state of Colorado, recreational users are subjected to a 15% sales tax, a 10% excise tax, and then a 15% excise tax on each marijuana sale. In Washington, there are a combination of sales tax, excise tax and a gross receipts tax on recreational marijuana.
The obvious starting point for any list of highest recreational taxes is to start with the states that impose the highest taxes on recreational drugs. As has been widely reported, Colorado is the No. 1 state for marijuana tax revenue, but that’s not the only recreational drug it has in its tax coffers. Nevada and Washington came in at No. 2 and 3, respectively. California, Alaska, Massachusetts and Oregon were all in the top 10, and the states that came in with the highest taxes on both marijuana and on alcohol, on the other hand, were Utah, Texas and South Dakota.Americans’ attitudes toward the legalization of marijuana have changed in recent years. In 2019, 66 percent of Americans believe marijuana use should be legal – a stark contrast to the 33 percent of Americans who supported the measure in 2009. As a result, a growing number of states have legalized marijuana for recreational use. Nine states now sell marijuana for recreational purposes, and several other states have legalized marijuana but are still in the process of setting up a retail and tax structure. Source: Tax fund 2020
States where recreational marijuana is currently sold
States where marijuana is legal but not yet available
Selling marijuana for recreational purposes is a relatively new trend, so tax rules need to evolve. Currently, marijuana is taxed differently in each state. Some impose a sales tax on consumers and an excise tax on agricultural producers. In some states, the tax is based on weight or horsepower. To clarify this patchwork of tax rules, let’s look at which states impose the highest taxes on recreational activities.
Tax on recreational marijuana
|Status||Turnover tax||Additional load|
|Alaska||0%||50 per ounce of mature flower; $25 per ounce of immature flower; $15 per ounce of trimmings; $1 per clone|
|California||15%||9.65/ounce flower; $2.87/ounce leaf; growth tax; $1.35/ounce cannabis plant.|
|Colorado||15%||15% excise duty|
|Nevada||10%||15% excise duty|
*Source: Tax Fund
What do the different types of tax mean?
If the state introduces the sale of marijuana for recreational purposes, it must decide how to tax it. Each state is different, but most states use three different methods to collect taxes, including:
Percentage of price
These taxes work similarly to a sales tax, where the consumer pays a percentage of the retail price and the retailer passes it on to the government. In most cases, the retailer raises prices to cover these costs.
Loads based on weight
Taxes based on weight are modeled after the cigarette tax, where a tax is levied on each pack. In the case of cannabis, the tax is levied on the weight of the plant, not the box. Normally different amounts of tax are levied on different goods. The chart above shows that California levies a tax of $9.65 per ounce on marijuana flowers, $2.87 per ounce on marijuana leaves, and $1.35 per ounce on fresh plant material. Alaska applies similar rates, but on different types of products. This tax is usually passed on to the consumer.
The tax on potency is based on the alcohol model, whereby beverages with a high alcohol content are taxed more heavily. With marijuana, potency depends on the THC content. The higher the THC content, the stronger the product. Illinois is the only state that levies such a tax. As the above graph shows, the strongest products (with THC concentrations above 35%) are subjected to the highest tax of 25%. The percentage of tax levied decreases as the strength of the product increases.
Which state has the highest taxes?
Washington’s 35% tax is the highest of the nine states that allow the sale of recreational marijuana. The state’s tax rate is more than double that of Washington’s southern neighbor, Oregon, which levies a 17 percent tax. Other states like Nevada, Michigan and Massachusetts have tax rates of about 10%. Why are taxes so high in Washington? It doesn’t seem to make sense, except that the industry is so new that each state sets its own rules. Although dispensary owners, growers and processors have expressed concern that high taxes are affecting their profits and limiting their ability to grow, the state appears determined to leave the tax rate unchanged. There may be some resistance to the tax rate, but this is a big win for the state. Washington pulled in $395 million in 2019, with about 500 stores across the state. The industry is now so oversaturated that the government has temporarily stopped issuing permits.
Washington has the highest taxes, but it’s not the most expensive place to buy marijuana
In 2015, Washington changed its tax structure and instituted specific tax levies on processors, retailers, and retail stores at a 37% rate on retail sales. This tax change makes the state the state with the highest tax on recreational marijuana sales. One would expect these high costs to be passed on to the consumer, but that is not the case. If you look at the average cost of an eighth ounce of marijuana in the state, it costs $35.42 including tax. That’s $10 less than what residents of Alaska, the most expensive state to buy marijuana, pay.
Alaska is the most expensive place to buy recreational weed
Alaska, a state with average taxes on recreational marijuana, is the most expensive place to buy the product. In Alaska, consumers pay $45 per eighth of an ounce. Next up is Nevada, where consumers pay $43 per eighth of an ounce. In California the price is $41, and in Massachusetts and Washington an eighth sells for about $35. Colorado and Oregon are the cheapest states to buy recreational weed, where an eighth of an ounce sells for about $30. What’s going on in Alaska? Why are the prices so high? Studies show several reasons. First, demand exceeds supply, allowing retailers to charge a little more. In addition, cannabis vendors in Alaska say the state requires laboratory testing for every 5-pound shipment of marijuana, which can be very expensive.
Colorado and Washington have taxed recreational marijuana the longest
Both Colorado and Washington have had taxes on recreational cannabis since 2014, and more will follow. In 2018 alone, $267 million was raised in Colorado and $439 million in Washington. Because of these annual tax levies, many states see a financial benefit in the recreational sale of marijuana.
Every state uses tax money for recreational marijuana otherwise
All states that tax recreational marijuana use these substances for different purposes.
- Alaska uses money to reduce criminal population
- Colorado reserves all cannabis taxes for education
- Washington redirects funds to health care
- States like California, for example, distribute funds in different ways. B. for drug prevention programs, economic development, school programs, and youth programs.
State taxes are only a small part of the costs that dispensary owners have to take into account
For those looking to open a pharmacy, understanding how the product is taxed is an important part of the financial picture – but not the whole picture. The average cost of opening a clinic can vary significantly. Some estimates put the cost of the project at $250,000 to $750,000, while others say start-up costs could be as high as $2 million. Here’s a look at some of the costs along the way:
Construction and mechanical engineering
You will likely need to construct or renovate a building for your store, which can quickly increase the cost. Approximately $150,000 will be used for the design, construction and furnishings necessary to make the commercial space functional and attractive.
Staff salaries and training
They need store managers, salespeople and security personnel, which can add up to about $250,000 a year at a standard wage of $10 to $20 an hour.
To open a business, you need stock on the shelves and a steady stream of customers.
For the smooth running of the pharmacy, a whole range of marketing activities must be carried out. These costs are highly dependent on the owner, but can be as high as $20,000 per month.
Applications and permits
To open a pharmacy, you must apply for a license. The application process is not cheap and usually takes quite a long time. In most states, the cost of applying for a license runs into the thousands of dollars. If you are lucky enough to be admitted, you will have to pay for your permit and usually an annual maintenance fee. In states like Washington, the number of permits issued is limited. Once all these documents are issued, a permit must be purchased from the current permit holder. As can be expected, the cost of obtaining a license in this way is very high, up to $60,000.
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