Cannabis Tax Revenues Surpass Alcohol In Adult-Use MarketsMay 3, 2022
Cannabis taxes last year outpaced those on beverage alcohol by 20% in states that have legalized, according to a report from the Institute on Taxation and Economic Policy (ITEP). The eleven states that had active recreational cannabis sales last year collectively took in just shy of $3 billion in cannabis taxes, up 33% compared to a year earlier. That beat out the nearly $2.5 billion collected by the same states in alcohol excise taxes and control state liquor store profits.
In California, cannabis tax revenue was double that of beverage alcohol in 2021, beating it $832 million to $415 million. In Illinois, the margin was somewhat narrower: cannabis taxes were worth $424 million while beverage alcohol contributed $320 million to the state. In Colorado, which ITEP points out has some of the lowest alcohol tax rates in the country, cannabis taxes of $396 million far outpaced $53 million from drinks. However, in Maine, Michigan, and Oregon, beverage alcohol tax revenue remained higher than that generated by cannabis.
“It is remarkable that in the span of just a few years, the narrow ‘sin taxes’ that states created to apply to cannabis purchases have managed to surpass the comparable taxes that have long applied to alcohol,” wrote authors Carl Davis and Mike Hegeman.
Cannabis tax revenue still cannot measure up to tobacco tax revenue, however. For the 11 states in question last year, tobacco tax revenue totaled $5.9 billion, far above the $2.9 billion in cannabis revenue. Tobacco taxation was worth just under $2 billion in California and just north of $880 million in both Illinois and Michigan. Of course, tobacco tax revenue is in jeopardy, with the share of U.S. adults who smoke cigarettes falling by 40% over the last 15 years.
While cannabis revenues are on an upward trajectory, ITEP points out that federal legalization will complicate the matter somewhat–interstate commerce, when it arrives, will almost surely drive massive price drops across the industry, threatening tax revenue for states that have pegged their collection solely to flower price.—Danny SullivanSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning. You will also receive the Cannabis edition as part of your subscription.