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Recreational Cannabis Markets Rack Up Tax Revenue In First Half

September 14, 2021

Tax revenues from the top seven recreational cannabis states totaled $1.64 billion for the first half of 2021, according Impact Databank. The figure represents a 48% increase over collections for the first half of 2020, when $1.11 billion was generated. The surge in tax revenues will be hard to ignore for states that have yet to legalize—especially those which are neighbors to the key adult-use markets now raking additional funds into their state coffers.

Tallying sales figures from California, Washington, Colorado, Oregon, Illinois, Massachusetts, and Nevada, tax revenue from cannabis has grown vertiginously since 2017, when the same seven states combined for a full-year haul of $697 million. The $1 billion barrier was broken with 2018’s haul of $1.2 billion, followed by $1.66 billion in 2019 and a 57% jump to $2.6 billion in all of 2020. The half-year figures put the seven states on track to exceed $3 billion in tax revenue by the end of this year.

The leader of the pack, by a wide margin, is California. From a base of $353.8 million in tax revenue in 2018, it rose to $1.1 billion last year. $638 million has already been collected in the first six months of this year, surpassing 2019’s full-year total and up 37% compared to the six months ending June of 2020, when taxes totaled $466 million. Its dominant position at No.-1—it’s up nearly $400 million over second place Washington—is a testament to the size of the cannabis market within California, which some estimates believe has only been about 25% converted to legal sales. The state’s tax rates place it in the middle of the pack, with a 15% excise tax on sales and additional weight-based taxes on wholesale.

Following California are two early adopter states, Washington and Colorado (both of which legalized in 2012). Their status high up the list attests to that early head start and their developed cannabis infrastructure—along with Oregon, the three states are considered mature markets that have reached their maximum potential, barring a major development like the Washington legislature removing its cap on retail licenses. Washington’s tax revenue was up 9.9% through the first six months of 2021 to reach $276 million, due in large part to its 37% excise tax, one of the highest in the nation. Colorado collections rose 37% to reach $228 million and Oregon’s were up 29% to $103 million.

Illinois tax revenue fell just short of Oregon’s last year but the exploding market has already blown past it in the first half of this year. From $175 million in all of 2020, Illinois’s half year total of $195 million is another illustration of how dramatically sales have grown in the Midwest. Likewise, Massachusetts’ six-month tally of $120 million fell just short of matching its 12-month haul last year, fueled by increasing access and an influx of large corporations making a play for market share in the Northeast. Finally, Nevada’s $83.5 million was good for a 64% improvement over last year.

Among states outside the top seven, Maine reported $10.2 million in tax revenue this August, while Arizona reported over $20 million that month. The use of cannabis tax revenue varies from state to state, with its most common allocations to school funding, transportation, and drug-use prevention programs.

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