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Where Colorado Ranks in Marijuana Tax Revenue

Colorado recently crossed the $2 billion mark in marijuana tax revenue, but it still ranks behind two other states.

A new report from the Marijuana Policy Project lists the tax revenue raised by states currently allowing recreational marijuana sales, and finds that these eighteen states have produced over $10 billion in combined tax revenue.

Although Colorado beat Washington to the punch with recreational marijuana sales by several months in 2014, Washington leads the two in tax revenue today, the MPP report shows. And California, which didn't begin recreational marijuana sales until 2018, has raised more tax revenue than either state.

According to the Colorado Department of Revenue, Colorado generated around $70 million in tax revenue during the state's first year of sales in 2014, and that number has increased every year, reaching almost $423.5 million in annual tax revenue by 2021, and over $2 billion overall. However, those numbers still pale in comparison to Washington and California, where around $3 billion and $3.1 billion in respective tax revenue have been raised, according to the MPP.

Despite the higher tax revenue, Colorado has consistently recorded higher sales figures in comparison to Washington, with Colorado dispensaries making nearly $700 million more than their Washington counterparts in 2020.

So where does the disparity in tax funds occur?

Washington's overall sales tax on legal marijuana purchases can top 46 percent in some localities, while California's can reach as high as 38 percent. Colorado also ranks third in that category, with most marijuana purchases carrying a sales tax rate around 25 percent (Denver's current recreational marijuana sales tax is 26.41 percent).

On top of that, medical marijuana purchases only carry a 2.9 percent standard sales tax in Colorado, while California and Washington don't have such exemptions, according to MPP state policy director Karen O'Keefe. California's population is about seven times larger than Colorado's and has a similar tax structure to Washington's; California also sees more tourism than Colorado, she explains.

Despite the lesser tax revenue, Colorado still has one of the healthier marijuana markets in the United States, O'Keefe says. The state has never seen a drop in annual cannabis tax revenue, even while experiencing 2020's significant decrease in tourism. According to O'Keefe, the state's steady increase in sales has created long-lasting economic benefits.

"When you have that kind of funding, economists say you have what's called a multiplier effect, where you not only have the initial investment in the stores, the jobs and the tax revenue, but then that money is in people’s pockets who spend it again," she says. "So it's as if each dollar is two or three dollars, which is the way economists usually look at it."
click to enlarge Colorado marijuana tax revenue crossed the $2 billion mark in 2021. - COLORADO DEPARTMENT OF REVENUE
Colorado marijuana tax revenue crossed the $2 billion mark in 2021.
Colorado Department of Revenue
O'Keefe believes this marijuana ripple effect has created over 40,000 jobs and more than 1,000 businesses in Colorado, as well as commercial investments.

“Some of the more recently taxed states are focusing on specifically investing a good chunk of the revenue in communities that have borne the brunt of marijuana prohibition and that have had disproportionate marijuana arrests," she says. "You’ll just continue to see more tax revenue, more people working in the cannabis industry, operating cannabis businesses."

Colorado marijuana tax revenue is split between a local shareback program for towns and counties that allow marijuana businesses, as well as education and the state's general fund, with education receiving the largest share. As of November 2020, Colorado marijuana taxes contributed about $330 million to school construction grants, according to the state Department of Education, as well as another $193 million to literacy grants, anti-bullying initiatives, dropout prevention and the hiring of public-health professionals in public schools. The Colorado State Public School Fund, a general education fund for public school across Colorado, has received an average annual contribution of $25 million from marijuana tax revenue since 2017, the CDE adds.

Although Colorado's marijuana industry has reached new heights every year since 2014, that growth could be slowing down. Colorado dispensary sales have been dropping for six months straight, according to DOR data, and the Governor’s Office of State Planning and Budgeting expects pot tax revenue to continue falling through 2022.