Legal Marijuana Sales Totaled $1 Billion in Colorado Last Year

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Pot is almost as big as craft beer, but the tax revenue it generates is still a tiny share of the state budget

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New numbers from the Colorado Department of Revenue show that marijuana sales by government-licensed stores in that state totaled nearly $1 billion in 2015, making marijuana almost as big as craft beer by that measure. Marijuana sales raised $135 million in taxes and fees for the state last year.

“These tax revenue figures are truly impressive,” says Mason Tvert, communications director at the Marijuana Policy Project. “Just six years ago, Colorado received zero dollars in tax revenue from the sale of marijuana in the state.”

While $135 million is indeed a lot compared to $0, it looks less impressive compared to the state budget, which totals $26.4 billion this fiscal year. In other words, last year’s marijuana money, $109 million of which came from taxes on recreational sales, amounts to about 0.5 percent of state spending.

That comparison does not dampen Tvert’s enthusiasm, because he ignores it. Instead he focuses on the 78 percent increase in revenue between 2014 (the first year of legal recreational sales) and 2015 and the fact that the 15 percent excise tax on recreational marijuana raised $35 million for school construction last year, just $5 million less than the maximum allocated by Amendment 64, Colorado’s legalization initiative. In addition to the excise tax, Colorado collects a 10 percent special sales tax on recreational marijuana, plus a 2.9 percent standard sales tax (which also applies to medical sales). Local governments can impose their own taxes, which in Denver total almost 12 percent.

“The additional tax revenue far exceeds the cost of regulating the system,” Tvert says. “Regulating and taxing marijuana has been incredibly successful in Colorado, and it represents a model for other states to follow. These numbers should put to rest the claims we keep hearing from opponents that marijuana tax revenue has fallen short of expectations in Colorado.”

I understand why legalization advocates hype marijuana taxes as a new source of government revenue, but I still think it’s a mistake. As I argue in a recent Reason feature story, the revenue will never amount to much, the desire to maximize it leads to tax rates that unfairly hit cannabis consumers harder than drinkers and make it difficult for legal merchants to compete with black-market dealers, and dangling found money in front of voters (most of whom will not pay the new taxes) tends to undermine the moral case for ending prohibition.

 

Reprinted with permission from Reason.com