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Majority of legal U.S. states collect more tax revenue from cannabis sales than alcohol: analysis

May 6, 2022 | Media Partners, The GrowthOp

This post is presented by our media partner The Growth Op
View the original article here.

“There aren’t many revenue sources that grow year over year. This has been a several-year trend now”

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A new analysis from the Institute on Taxation and Economic Policy (ITEP) has found that cannabis taxes largely outpaced alcohol taxes in legal U.S. states.

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Looking at 2021 data from 11 states, study authors found that those with legal cannabis collected nearly US$3 billion in cannabis excise tax revenue, compared to about US$2.5 billion collected on alcohol excise taxes or state-run liquor store profits.

According to the analysis, the amount of cannabis excise tax revenue collected increased by 33 per cent, year over year.

  1. The government charges an excise tax of 10 per cent on the sale price of cannabis, or $1 per gram, whichever is greater.

    Canadian governments raked in $186 million in taxes on cannabis trade in first five months of legalization

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    Legal cannabis has created 151K jobs and contributed $43.5 billion to Canada’s GDP

  3. Led by University of Waterloo researchers, the study examined cross-sectional survey data come from nearly 5,000 Canadians.

    Canadians increasingly buying cannabis from the legal market

One of the largest discrepancies was found in Colorado, where recreational cannabis has been legal for a decade.

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Cannabis taxes in the state were nearly eight times higher than the excise taxes collected on alcohol. Study authors largely attributed this to the fact that Colorado has some of the lowest alcohol tax rates in the U.S.

They found that state residents pay 2.7 cents in taxes for a shot of liquor or 1 cent per pint of beer. For comparison, a 5-milligram edible will incur about 16 cents of state tax. Colorado levies a 15 per cent excise tax on both wholesale and retail cannabis transactions.

It’s the opposite situation in Alaska, which was one of four of the 11 states where alcohol taxes outpaced cannabis. Residents of The Last Frontier pay about 15 cents in taxes per shot of liquor, which is higher than most states.

The study also notes the sliding scale for cannabis excise taxes. Michigan has one of the lower tax rates at 10 per cent, while Washington leads the nation with a 37 per cent excise tax rate.

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And though the alcohol industry remains considerably larger across the U.S. and cannabis is a relatively small part of state budgets, study author Carl Davis told The Hill “it’s a very quickly growing area.”

“There aren’t many revenue sources that grow year over year. This has been a several-year trend now,” he said. “The early states, what you see is revenue start low and grow very, very quickly.”

The findings from ITEP are in line with an analysis from the Marijuana Policy Project, published last month, that found that legal states had generated US$3.7 billion in cannabis tax revenue in 2021, a 34 per cent increase from 2020.

In Canada, the government charges an excise tax of 10 per cent on the sale price of cannabis, or $1 per gram, whichever is greater.

In the first five and a half months following legalization in Canada, federal and provincial governments collected $186 million in tax revenue from both excise taxes and general taxes on pot sales.

Earlier this year, a report from Deloitte Canada found that cannabis purchases have generated $2.9 billion in sales and excise taxes since 2018.

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