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In states where cannabis is legal, a new analysis finds excise tax collections from pot leading booze. But the money is a small share of state budgets and changes to the industry could affect revenues.
Tax collections from marijuana are pulling ahead of revenue from alcohol in states where cannabis is legal, according to a new analysis.
The Institute on Taxation and Economic Policy shows that, across 11 states that allow legal marijuana sales, state-level cannabis excise taxes totaled $2.9 billion in 2021, compared to about $2.4 billion from similar taxes on alcohol, or profits from state liquor stores.
"While the tax remains a small part of state budgets, it’s beginning to eclipse other 'sin taxes' that states have long had on the books," noted researchers Carl Davis and Mike Hegeman in a post about the findings.
But they also emphasize that the alcohol industry is far larger than the cannabis sector and that its overall tax contributions, beyond just excise taxes, are the bigger of the two.
The nearly $3 billion in cannabis excise taxes the researchers document marks a 33% increase over the prior year. As they point out, though, the funding is just a sliver of what states spend.
For example, Colorado saw $396 million of cannabis excise tax collections in 2021 and $53 million from taxes on booze. But the state's total budget for fiscal 2020-21 was around $36 billion.
One twist with marijuana tax revenues that Davis and Hegeman highlight is that, if cannabis is legalized at the federal level, the industry would change dramatically and prices would likely fall. In states where taxes are tied to price, as opposed to quantity of sales, collections would be in line to take a hit.
"The good news is that states have straightforward options to prepare for this moment" by tying taxes to quantity purchased, they write, adding that some states are already making tax changes of this sort.
Excise tax revenue from alcohol was higher than the sums that rolled in from marijuana in four of the 11 states, including Alaska, Maine, Michigan and Oregon. The latter three on that list are "control" states, the researchers note, where the state has a direct hand in liquor sales.
As of November last year, 18 states and the District of Columbia had approved measures to regulate marijuana for adult, non-medical use, according to the National Conference of State Legislatures. New Jersey began legalized recreational marijuana sales on April 21.
When it comes to so-called sin taxes, tobacco products remain up top generating revenue in the states the ITEP research examines. Tobacco excise taxes in 2021 in the 11 states checked in at $5.9 billion.
In two states that moved early to legalize marijuana—Washington and Colorado—cannabis excise taxes outperformed those on tobacco.
ITEP's full findings can be found here.
Bill Lucia is executive editor for Route Fifty and is based in Olympia, Washington.
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