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States that legalized marijuana raise more tax revenue on pot sales than alcohol

Tobacco products continue to generate much more revenue for state governments for most of the 11 states, save two.

Published: May 6, 2022 8:37am

Updated: May 6, 2022 3:04pm

(The Center Square) -

A majority of the states that legalized recreational marijuana for recreational use are collecting more tax revenue from pot sales than alcohol sales.

The first two states to legalize pot are profiting the most, Colorado and Washington. Across the country, the total revenue for taxes on weed amounted to nearly $3 billion, according to a report on "sin taxes" by The Institute on Taxation and Economic Policy (ITEP).

So far, 11 states have legalized the sale of recreational marijuana.

The states that have given recreational marijuana legalization the green-light are Colorado, Washington, California, Illinois, Michigan, Massachusetts, Oregon, Arizona, Nevada, Maine and Alaska.

All but four of the above states collected more excise tax revenue from weed sales than alcohol.

Other items subject to what is known as a “sin tax” are tobacco products and alcohol sales.

One of the exceptions is Alaska, which is attributed to the fact that the Last Frontier “has a higher alcohol tax rate than most states (15 cents per shot of liquor, for example),” according to the ITEP report.

The remaining three outliers are Maine, Michigan and Oregon, because these three states are called “control states,” since each of the said state governments operate quite profitable state-run liquor stores, according to the ITEP report.

Tobacco products continue to generate much more revenue for state governments for most of the 11 states, save two.

The report points out that cannabis sales tax revenues in Colorado and Washington state surpass that of alcohol and tobacco alike. These were the first two states to legalize (and in turn tax) recreational marijuana sales.

That said, with cannabis usage becoming less stigmatized and increasingly popularized and since tobacco use is on the decline – state tax revenues from tobacco are slowly sinking, the report says.

The state of California, which boasts the fastest-growing legal grass industry, “generated $832 million in excise taxes, about twice as much as from alcohol sales,” The Hill reported.

As a collective, the 11 states that legalized the recreational use and sales of weed “pulled in just shy of $3 billion in excise taxes on pot in 2021, compared with the $2.5 billion they made on alcohol excise taxes or liquor store profits,” per the Hill report.

The results do not ring true in each case state by state, but rather the figure represents the sum of sin tax collections from the 11 states at hand.

The reason could have something to do with the fact that the tax rate on marijuana is much higher than that of alcohol in such states.

For example, in Massachusetts, the state levies a 10.25% excise tax on marijuana products. This comes “in addition to the local option tax of up to 3% and the state's 6.25% sales tax,” according to MassLive.

On the other hand, alcohol tariffs are based on the amount of liquid weight that is purchased.

The Commonwealth of Massachusetts Revenue Monthly Report of Collections and Refunds from December 2021 reported over $74 million in revenue from marijuana excise taxes for the fiscal year of 2022, as compared to approximately $51 million coming from alcohol sales.

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