What Legal Pot Adds to CO’s Budget: +$250 million

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What Legal Pot Adds to CO’s Budget: +$250 million

If you were a governor with an outsized state budget deficit, how would you help narrow that gap? A popular solution for many states: legalize recreational marijuana. That’s why an increasing number of Democratic gubernatorial candidates everywhere from New Jersey, New York and Florida to Illinois, Minnesota and Connecticut included such a proposal on their campaign platforms during their last US elections.

Can retail marijuana taxes really make a dent? The short answer is yes, and Colorado is the best case study given that the state has the longest legalization (and therefore taxation) track record.

Here’s a breakdown of marijuana sales and tax revenue in Colorado over the past five years:

  • Retail Marijuana Sales: Annual marijuana retail sales increased from +$303.2 million in 2014 to +$1.09 billion in 2017, up 260%. The latest data for this year shows retail sales of $1.01 billion through October 2018. Even if sales just match the average of the prior year’s November and December sales figure of $92 million, 2018 could total $1.19 billion in just recreational cannabis sales alone. 

    We also want to note that retail sales topped $100 million/month from June 2018 – October 2018 (latest available data). This shows that sales are not as seasonal as one might think given Colorado’s large wintertime tourist industry.

    Overall, from the first recreational sales in January 2014 through October 2018, retail sales totaled $3.84 billion.
  • Total Marijuana Sales (Retail and Medical): Total marijuana sales rose from +$683.5 million to $1.508 billion in 2017, up 121%. Total sales were $1.287 billion in 2018 through October with still two months left of data to add. Overall, medical and retail marijuana sales crossed the $5 billion mark in May 2018 since stores first started selling recreational cannabis. That figure is now up to $5.78 billion as of October 2018.

    Total marijuana sales have surpassed $100 million every month for the past +2.5 years, but retail marijuana makes up most of the total sales. In October 2018, for example, retails sales made up 78% of the total sales print of $129.2 million.
  • Tax Revenue: Total revenue from taxes, licenses and fees rose from $67.6 million in 2014 to $247.4 million in 2017, up 266%. It totaled $244.9 million for last year through November (latest available data). Overall, total revenue from taxes, licenses and fees reached $883.9 million from January 2014 through November 2018. 

    The 15% excise tax and 15% sales tax on retail marijuana bring in the most revenue, of course. In November 2018, for example, the retail marijuana sales tax made up 70% of total taxes and fees of $21.6 million for the month, while the retail marijuana excise tax accounted for 21% of the total. The state sales tax of 2.9% and license and fees made up the balance (the state sales tax just applies to medical marijuana and medical marijuana products as of July 2017).

    You can see a full breakdown of marijuana taxes in Colorado on the government’s site here.
  • Where the money goes: 90% of the excise tax revenue or the first $40 million, whichever is greater, goes to the Capital Construction Assistance fund for schools. Ten percent of the state’s 15% tax on retail marijuana is distributed to local governments, while the remaining 90% is allocated to the General Fund (15.6%), Marijuana Tax Cash Fund (72%) and the Public School Fund (12.6%). 

    For example, $40 million from marijuana excise tax revenue was given to school capital construction assistance in 2017, while another $27.8 million was distributed to the public school fund. You can see all the details here.

Lastly, given that almost 40% of the licenses for marijuana businesses in Colorado are concentrated in Denver as of May 2018, we want to highlight a few quick 5-year stats from the city:

  • Recreational marijuana sales in Denver totaled $1.04 billion between 2014 and 2017. It was $327 million from January to October 2018 (latest available data).
  • Total recreational and medical cannabis sales were $2.28 billion from 2014 through October 2018.
  • Total revenue from taxes, licenses and fees were $173.1 million from 2014 through October 2018. Some examples of where this money went over those years include: $12.8 million towards education, $4 million to fix aging parks and recreation centers across the city, and $8 million per year to help double Denver’s Affordable Housing Fund.

    You can read more details here on The Denver Channel.

Bottom line, Colorado is a successful example of a state finding a new lucrative source of revenue by legalizing recreational marijuana. Bear in mind that Colorado only has a population of 5.7 million, ranking it middle of the road compared to other US states. Can you imagine what a boon it would be for the most populous states with even more concentrated cities such as New York? No wonder New York Governor Andrew Cuomo flipped in support of the issue last year and is making it a priority for 2019. That and marijuana legalization has majority support from Americans.

Taxes from marijuana sales may not close all budget gaps, but states can take all they can get. We would not be surprised for the next Democratic presidential candidate to include national legalization on his or her platform for 2020.