Have you ever been shopping for cannabis and were surprised to find that the final price was higher than you expected? In some instances this miscalculation could result in a second trip to the ATM, or disappointedly telling the budtender that, on second thought, you won’t be buying that last eighth. This situation can occur often because cannabis is subjected to much more than your typical sales tax, and, fun fact—retailers are limited in their ability to advertise prices that include tax. Taken together, these two factors often leave you guessing on the final price of your purchase.
When retail cannabis was introduced in Colorado, cannabis tax revenue was touted as a means to fund regulation of the nascent industry and help offset the expected social costs. As part of this strategy, an excise tax of 15 percent was levied on the producers of retail cannabis. Of the revenue generated from this excise tax, $40 million annually is earmarked for the Building Excellent Schools Today (BEST) fund, which makes money available to schools or districts throughout the state through competitive grants. Revenue generated in excess of $40 million is used to support public education. As this tax is paid by the producer, it is already included in the sales price prior to purchase, so it does not directly contribute to the often surprising post-tax checkout price.
“The range of programs varies based on the needs of individual communities, but has been used to train local law enforcement, create college scholarships, and fund initiatives to support individuals experiencing homelessness.”
Next, there is a special cannabis sales tax set at a rate of 10 percent. This tax applies at the point of purchase by you, the consumer. This 10 percent tax applies whether you are buying edibles, the shake special or premium, top-shelf nugs. Money collected from this tax goes two places—15 percent of the revenue goes to local governments across the state that allow retail cannabis, while the remaining 85 percent goes to the state-run Marijuana Tax Cash Fund.
Since 2014, local governments have received approximately $28 million through this payment system, with yearly revenue growing in proportion to total retail cannabis sales. Local governments have flexibility on how they spend this money. In some cities this revenue goes directly into the city’s general budget, where it supplements other revenues generated through sales and property taxes, and helps support the city’s general operations. In other cities, cannabis tax revenue is separately tracked and allocated for specific programs to provide greater transparency to residents on the impact of retail cannabis in their communities. The range of programs varies based on the needs of individual communities, but has been used to train local law enforcement, create college scholarships and fund initiatives to support individuals experiencing homelessness.
Additionally, purchases of retail cannabis are subject to a standard statewide 2.9 percent sales tax, just like any other purchase. Revenue from this tax is also deposited in the Marijuana Tax Cash Fund. The cash fund has approximately $118,000,000 available for allocation and distribution in the next fiscal year. Money from the cash fund is allocated at the discretion of the legislature to programs that help ensure robust regulation, advance drug education and prevention efforts for youth, support behavioral and mental health treatments, and/or promote public health and safety objectives. As the size of the cash fund has continued to grow (the amount available for allocation has increased approximately $26 million over the last fiscal year) the number of programs and the populations served have expanded.
Last but not least, there are local sales taxes and even local special cannabis taxes. Added together, the taxes can total 20 percent of the pre-tax price or more, especially if the excise tax is considered.
Despite the multiple layers of taxes, it is important to note cannabis tax revenue composes a small percentage of the state’s overall budget and is not a replacement to sound fiscal policy. However, the relatively small size of cannabis tax revenue should not detract from the concrete benefits provided to communities across the state and the important role these taxes play in ensuring responsible regulation. So next time taxes leave you surprisingly short on cash at checkout, think of the programs, schools and communities you are supporting, and remember, taxes are a small price to pay for the privilege of legal cannabis.