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Cannabis Taxes Outraised Alcohol by 20 Percent in States with Legal Sales Last Year

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      JonLP
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      The cannabis industry has come a long way since the first legal sale of adult-use cannabis eight years ago in Colorado. In 2021, the 11 states that allowed legal sales within their borders raised nearly $3 billion in cannabis excise tax revenue, an increase of 33 percent compared to a year earlier. 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. Most of the states that allowed cannabis sales last year raised more revenue from cannabis excise taxes than from alcohol excise taxes and profits (in the case of state-run liquor stores). In total, cannabis revenues outperformed alcohol by 20 percent by this measure.

      Colorado stands out among this group with cannabis taxes raising seven times more than its excise taxes on alcohol. Not coincidentally, Colorado also has among the lowest alcohol tax rates in the nation. Alcohol excise taxes in Colorado are 2.7 cents per shot of liquor, 1.3 cents per glass of wine, or 1 cent per pint of beer and raised a combined total of $53 million last year. Colorado’s cannabis taxes are levied at higher rates per serving (a 5-milligram edible might incur around 16 cents of state tax, for example) and raised $396 million. While Colorado represents a relatively extreme case, low alcohol tax rates are the norm across much of the country as their real value has been eroded substantiallyby years of inflation and policy inaction.

      But cannabis isn’t always the most lucrative “sin tax.” Last year, four of the 11 states that allowed for legal cannabis sales raised more revenue from alcohol. This includes Alaska, which has a higher alcohol tax rate than most states (15 cents per shot of liquor, for example), as well as three “control states” that generate profit directly at state-run liquor stores: Maine, Michigan, and Oregon. Moreover, because the alcohol industry is significantly larger than the legal cannabis industry, its overall tax contribution from general sales taxes, fees, various local taxes, and other levies surely surpasses that from cannabis. Nonetheless, it is remarkable that in the span of just a few years, the narrow “sin taxes” that states created to apply to cannabis purchases have managed to surpass the comparable taxes that have long applied to alcohol.

      Both alcohol and cannabis revenues are usually overshadowed by tobacco which, for the time being, is the top “sin tax” revenue source in states. State-level excise taxes on tobacco range from 9 to 18 cents per cigarette in the states with legal cannabis sales discussed in this article. Across these states, tobacco excise taxes raised almost twice as much ($5.9 billion) as cannabis taxes. How much longer this pattern will hold is difficult to predict because cannabis and tobacco revenues are on very different trajectories.

      https://itep.org/cannabis-taxes-outraised-alcohol-by-20-percent-in-states-with-legal-sales-last-year/

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