As Colorado Marijuana Tax Revenue Fades, So Do Local Kickbacks

Colorado’s marijuana revenue pie is getting smaller, with fewer slices to go around for local governments. Just over $6 million worth of slices per year, according to state lawmakers.

Colorado’s legal marijuana tax system is complicated, but for almost a dozen years the Colorado Department of Revenue would issue a certain percentage of taxes and fees back to counties and towns that allow retail sales. Since 2014, over $210 million has been disbursed to dozens of local governments that opted into marijuana sales, with payments based on sales tax revenue generated in each jurisdiction.

But those payments have been shrinking as the luster of legal weed fades.

The local government kickback for marijuana sales was 15 percent until 2017, when it was cut to 10 percent. Then it was slashed again to 3.5 percent in 2025. And if House Bill 26-1409 passes, that local slice of state revenue will be eliminated entirely.

The proposal would not affect taxes on marijuana imposed by local municipalities. However, if HB 1409 is successful, an estimated $12.3 million would be withheld from local governments over the next two years.

Instead, that money would go to the state’s Marijuana Tax Cash Fund, which can be used for more than a dozen forms of state funding, including education, public health, law enforcement and housing.

The House Appropriations Committee approved the bill 10-1 in its first hearing on April 7. State Representative Emily Sirota, who serves as vice chair of the committee, said the elimination of the local government share was largely due to Colorado’s plummeting marijuana tax revenue and the difficulties involved with projecting tax totals.

“Each year, revenue projections come in for the Marijuana Tax Cash Fund, and they have continued on the decline over those years,” Sirota told the committee. “Those projections tend to come in rosier than actuals, and so we have been challenged to find balance in this fund, which I think over the years members used to fund a variety of excellent programming for our constituents and serving the state. But we have been challenged in finding balance.”

Colorado’s dispensary sales dropped over 40 percent from 2021 to 2025, DOR records show, from more than $2.2 billion to around $1.3 billion. During that same span, annual tax revenue fell from over $423 million to around $236 million.

About 70 percent of marijuana special sales tax revenue is currently distributed to the Marijuana Tax Cash Fund, while just under 12 percent is sent to the State Public School Fund, around 14.5 percent to the General Fund and 1.5 percent to a fund that helps pay for commercial marijuana enforcement and licensing. (Among other tax layers on legal weed in Colorado, a 15 percent excise tax on wholesale marijuana also funds public school construction.)

If the bill passes, the local government share would go to the Marijuana Tax Cash Fund. As Sirota pointed out, local governments are free to add their own taxes to marijuana production and sales — and virtually all of them do.

According to Kevin Bommer, executive director of the Colorado Municipal League, at the time the original enabling legislation was passed, lawmakers approved the local kickback to help keep sales taxes low at the county and town levels. But the Colorado Municipal League is the lone entity that has registered in opposition to the bill, and he wasn’t surprised to see it introduced.

“Look, I’m stunned it lasted this long,” Bommer said at the April 7 hearing. “It went from 10 to 3.5 [percent] last year, and now it’s going away completely. I fully expected this would be a target fairly quickly. Here we are, and now it’s gone.”

Not quite yet. The measure now moves to the full House.