It’s not exactly breaking news that cannabis is a profitable industry, a proverbial cash cow that’s left marijuana practically mooing. Per Fortune, it only took 10 months into 2016 before the Mile High City and surrounding areas passed the one-billion-dollar mark in sales for the year. This tops the 996-million-dollar mark reached in 2015. It also set 2016 up for a 30 percent increase in revenue (or a more than seventy percent increase since the first recreational dispensaries opened back in 2014).
Not all of this influx is the result of recreational sales, but it certainly leads the way. In October alone, pot shops sold 82.8 million dollars in recreational marijuana and another 35 million in medicinal.
With so much money coming in, taxes are flowing too. Through October of last year, Colorado had collected over 150 million dollars by levying legalized weed.
But where does this money go?
Many Colorado residents are aware that some of the funds are earmarked for schools; in fact, this was a factor in legalization – Vote for Pot and Save the Children. A lot of people would have voted for legalization anyway, but this swayed some of those stuck on the fence.
But, what does this mean, exactly? And, education aside, where else do these tax dollars go?
First, a Word on Colorado Taxes
Before we dive into how tax revenue is spent, let’s discuss some of the details of this taxation. According to the Entrepreneur, Colorado charges different taxes on pot sales: a 15 percent excise tax, a 2.9 percent tax applied to both medicinal and recreational sales, and a 10 percent tax on retail sales (called “special sales tax”).
Most Coloradoans find out very quickly that smoking weed recreationally is much more expensive than doing it medically. For those unaware of the financial details, this perhaps came as a shock upon making an initial marijuana purchase. We’re used to around 7 percent sales tax and nothing more.
But it is what it is: if you want Mary Jane you have to pay Uncle Sam.
What This Means for Colorado Buyers
According to 9 News, for recreational buyers purchasing inside Colorado’s state capitol, the tax breakdown for 1/8 ounce of marijuana goes as follows:
$30.00 - base price for the marijuana plus excise tax $3.00 – 10% special states sales tax $.87 – 2.9% regular state sales tax $1.43 – 4.75% Denver sales tax $1.05 – 3.5% special Denver sales tax
This results in a $36.35 total purchase or $8.48 paid in taxes (or an effective tax rate near 30 percent).
Where Does the Tax on Cannabis Revenue go?
Colorado divvies up the revenue from pot taxation in a variety of ways. As mentioned above, some goes towards education: the first 40 million dollars collected per year (as a result of the excise tax) goes to the BEST fund.
This fund – Building Excellent Schools Today – helps renovate damaged public schools. It helps build new ones as well
The Department of Education also receives 8 million for several programs, including those that stop bullying, reduce the school dropout rate, and encourage literacy.
The Department of Public Health and Environment receives 18 million for a few different programs. These include substance abuse and prevention grants and the Marijuana Education Campaign, a campaign that strives to show young Coloradoans that their lives can be full without weed.
The Department of Agriculture receives three million for pesticide control, 4H, FAA programs, inspection services, and miscellaneous other services while the Attorney General’s office receives more than one million, including 286,766 dollars for a special prosecutions unit and, maybe, an idea for a new TV show (Law and Oder SPU).
The Governor’s Office receives just over 200,000, turning most of this over to the Office of Marijuana Coordination.
What This Means for Colorado’s Budget
Cannabis is clearly big business for Colorado’s economy and the state government, but in terms of the “big picture” the money made off marijuana isn’t the answer to every budgetary problem. Per the Colorado Fiscal Institute, the state’s general fund is 9.7 billion while the state budget (when federal funds and other cash are taken into consideration) balloons to 36 billion. In other words, no vice tax or any other type of gimmick can replace taxes on more solid sources, namely sales, income, and property.
Another way to think about this is that pot provides revenue that makes a difference in the budget, but not so much that the government can solve every issue. There’s simply not enough to go around. Just as you wouldn’t buy a yacht if you received a five percent raise, the government isn’t suddenly rolling in the dough…..even if they are rolling in the dope.
Still, every little bit makes a difference. Even if those differences are relatively small, they add up to larger ones. As pot continues to grow as an industry, the impact on budget will grow as well. Someday, the government might get their yacht after all.
Other Taxes on Our “Sins”
Of course, pot isn’t the only thing that’s taxed at a higher-than-average rate; other things are too. This is a result of the so-called “sin tax.”
Per Investopedia, a sin tax is a state-sponsored tax that’s added to items or services seen as vices
they’re added as a way to discourage individuals from purchasing or engaging. They’re sort of in a purgatory between prohibition and acceptance; things subject to sin tax are legal, but more expensive than “wholesome” products. They provide the government with increased revenue, naturally.
People in favor of sin tax argue that the things taxed have the potential to burden society; cigarette use, for instance, increases illness and disease, which increases healthcare costs. Those against sin tax argue that they’re the result of governmental overreach and they affect the poor disproportionately. Besides, where is the line drawn? Chocolate – because of its high fat and sugar content – could be subject to levy. That would be a disaster.
In Colorado, sin tax doesn’t only apply to marijuana, it also applies to cigarettes and tobacco, liquor, and casino games.