The financial benefits of cannabis tax revenues have often been used as a mechanism to persuade state lawmakers or voters to support state-by-state legalization efforts.
Excise taxes on cannabis can be used to fund schools, child care programs, law enforcement officials, environmental groups, youth substance abuse prevention, social equity and justice, job initiatives, public health and safety, and myriad state coffers.
But the gunnie pig days of Colorado and Washington legalizing adult-use cannabis are now more than 10 years in the rear-view mirror, and many prohibitionist fears have since been debunked. For example, the proportion of Colorado high school students reporting ever using cannabis in their lifetime remained statistically stagnant in the years following adult-use legalization, from 36.9% in 2013 to 35.9% in 2019, according to the state’s biennial “Impacts of Marijuana Legalization,” report.
RELATED: Impacts of Cannabis Legalization in Colorado Highlighted in State’s Biennial Report
In Washington, which levies a 37% excise tax on adult-use cannabis in addition to a 6.5% sales tax and a roughly 2.9% local tax, the state has collected more than $3 billion in taxes off the backs of cannabis businesses in the past five years alone, according to figures from the state’s Liquor and Cannabis Board.
With the highest cannabis excise tax in the nation, Washington lawmakers have appropriated that revenue primarily to fund the state’s Medicaid program, in addition to its general fund, and substance abuse prevention and public health programs, according to Gleam Law.
In an industry like no other, cannabis is often targeted in various other tax collection avenues.
In California, for example, the state not only collects a 15% excise tax on retail sales along with a general sales tax that ranges from 7.25% to 10.75% depending on the municipality in which a dispensary operates, but certain localities tax cultivators based on the square footage of their grows. In Sonoma County, cannabis cultivators are taxed at a rate of $7.58 per square foot for indoor grows, $2.58 per square foot for mixed light grows and $0.69 per square foot for outdoor grows.
At the state level alone, the California Department of Tax and Fee Administration (CDTFA) has collected roughly $7 billion in state taxes from cannabis businesses since adult-use sales launched in 2018.
While the CDTFA recently offered tax relief to all businesses impacted by the Los Angeles County wildfires by extending a filing deadline by three months, and while the state’s Department of Cannabis Control announced that license holders could request disaster relief, business executives remained confused about who qualified for the relief.
RELATED: California Wildfires Shut Down Cannabis Businesses, Threaten Others
Others remained less confident in the government’s ability, or willingness, to assist cannabis businesses in general.
“The truth is the City of LA (highest tax rate in the state, at 10%) has been treating these cannabis businesses as a piggy bank for years … with no accountability for how that $100M in annual cannabis tax revenue has been spent,” Hirsh Jain, founder of industry consultancy Ananda Strategy, told Cannabis Business Times. “It’s a little late for local and state authorities to be helpful to the cannabis industry. They’ve already decimated it.”
Meanwhile, in Colorado, the state includes 15% excise tax rates at both retail and wholesale.
New York, Illinois and Connecticut levy a THC “potency tax” at various stages of the supply chain. For example, New York’s adult-use cannabis program includes both a 13% excise tax at retail and a potency-based tax on distributors: $0.03 per milligram of THC for edibles, $0.008 per milligram for concentrates and $0.005 per million for cannabis flower.
Alaska and Maine levy weight-based cultivation taxes. Alaska’s structure includes an $800 per pound tax at the state level and a local tax option of $120 per pound. In Maine, there’s a $335 per pound cultivation tax on top of a 10% excise tax at retail.
The list goes on.
But at a time when only 27.3% of U.S. cannabis businesses are profitable, compared to 65.3% of all small businesses in the U.S. in 2024, according to industry data and resource provider Whitney Economics, why are state officials continuing to treat the industry as a cash cow in 2025?
The unmerciful tax rates listed above come nearly five years after cannabis businesses were declared “essential,” just like grocery stores, pharmacies and police stations, by state after state after state amid the coronavirus outbreak in early 2020. And the tax rates come at a time when the industry supports roughly 450,000 full-time jobs in the U.S., according to industry staffing platform Vangst.
Still, in 2025, various state lawmakers and beneficiaries of cannabis tax revenues continue to single out the cannabis industry, from California to Maine, Mississippi and Montana.
In California, the state’s 15% cannabis excise tax rate is set to increase to 19% on July 1, 2025, a hike resulting from Gov. Gavin Newsom signing Assembly Bill 195, which eliminated the state’s weight-based cultivation tax on July 1, 2022. The legislation included a compromise with various beneficiaries of cannabis tax money to automatically raise the cannabis excise tax rate three years later to compensate for lost revenue.
Industry coalition members from various trade groups wrote a letter to Newsom in May 2022 objecting to this compromise, stating that the tax hike would contribute to “driving up prices to the end consumer, further destabilizing a fragile legal market and further empowering a formidable illicit market.”
In Maine, Gov. Janet Mills recently proposed to make up some of the state’s $450 million budget gap, in part, by raising or adding new taxes on cannabis, including a 4% increase to the cannabis excise tax—from 10% to 14%—the Maine Morning Star reported.
Maryland Gov. Wes Moore also proposed a cannabis excise tax hike in his recently released budget proposal, from 9% to 15%. He indicated that increasing taxes would help balance the state’s deficit. “We did not create this fiscal crisis, but we are determined to fix it,” Moore said in a press release.
In Mississippi, state regulators are proposing amending the state Department of Revenue’s excise tax rule to include medical cannabissales, Bloomberg Tax reported. While taxing prescription medicine is generally frowned upon in the U.S.—medical cannabis patients in Mississippi must have a recommendation from an accredited physician to participate in the program—some states even refrain from taxing over-the-counter medicines.
And in Montana, conservation groups are worried that Gov. Greg Gianforte and state lawmakers are going to funnel revenues from the state’s 20% cannabis excise tax away from state parks and other wildlife and habitat programs amid legislative proposals to do so, the Idaho Capital Sun reported.
As the tug-of-war over cannabis excises taxes continues to unfold throughout the country, elected officials and tax revenue beneficiaries often forget one of the underlying purposes of legalization: promoting public health and safety through tested and regulated products that are made available through licensed businesses.
However, punitive tax rates often drive cannabis consumers away from licensed dispensaries and to the unregulated market.
California, Maryland, Maine and Mississippi are entertaining cannabis excise tax hikes this year that could put licensed businesses in jeopardy. Read More
