Colorado is pulling in a significant amount of money by taxing recreational marijuana, but it’s not enough to pave the streets in gold.
In part because supporters of legal pot hyped the potential to raise millions, some Coloradans have been left to wonder why all that money hasn’t revolutionized life in our state.
In the last couple of months, viewers have asked 9NEWS questions like:
“I understand the schools need refurbishing but isn't that what the taxes from the marijuana was supposed to go to? Why isn't anyone responsible to account for all of that money?”
“When will taxes collected on the passing of the legalization of marijuana actually be distributed to the promised programs?”
“I have not seen much in the media about Colorado’s marijuana tax revenue and where it is going. Last I heard, most of it was tied up in bureaucratic mess and that schools and communities hadn’t seen any help yet.”
What follows is our attempt to make the taxes on pot as simple as possible to understand.
Brandon's full story airs on Next with Kyle Clark at 6 p.m. Monday
ONE BAG OF WEED
We’ll start small—with one bag of marijuana on the store shelf.
If you buy marijuana in Colorado, you’re going to pay several different taxes on it: a wholesale tax, regular sales tax to the state and local government, and a special sales tax just for marijuana.
In most Colorado pot shops, you can get a 1/8 ounce bag of marijuana for about $30.
That $30 price tag already has taxes baked into it. Marijuana companies pay a wholesale tax to the state for every pound of marijuana they produce, based on the state’s average market rate for various kinds of marijuana.
For marijuana flower (or in smoker-friendly terms, “bud,”) the tax works out to $242.40 per pound, which means our 1/8 ounce bag has already earned the state $2.13 of wholesale tax.
If the store rings you up for that bag of pot, more taxes get tacked on. For sake of this explainer, we’ll pretend this purchase happened in Denver, which charges its own local taxes on pot.
$30.00 – 1/8 oz marijuana
$3.00 – 10% special state sales tax
$0.87 – 2.9% regular state sales tax
$1.43 – 4.75% regular Denver sales tax (including RTD/SCFD tax)
$1.05 – 3.5% special Denver sales tax
$36.35 – GRAND TOTAL
Marijuana is a heavily taxed product in Colorado.
If you count the excise tax in this example, the total tax you’ve paid on this purchase is $8.48. That’s an effective tax rate of 30.43 percent on $27.87 worth of marijuana.
HOW IT ADDS UP
The heavy taxation of pot does add up—it’s simply not enough money to revolutionize the way Colorado pays for government services.
In the fiscal year that ended in June of 2015, recreational pot brought in a total of $129 million in state taxes ($129,136,316 to be exact.)
Since local taxes on pot vary, we’re going to confine this section to how the state-level taxes on marijuana add up.
While that is a lot of money to the average person, it’s not a life-changing amount to the state government.
Consider for a moment that in that same fiscal year the state collected $10.3 billion in taxes for its general fund—the money used to operate the state government each year.
All of those taxes on recreational marijuana amount to roughly 1.3 percent of the state’s tax general collections. It’s more than just a drop in the bucket—closer to a cupful.
Still, if you got a 1.3 percent raise at work tomorrow, it probably wouldn’t be enough to make you run out and buy a house twice the size of your current one.
But it might be enough to help you make a few upgrades.
Which brings us to…
WHERE THE MARIJUANA MONEY GOES
Supporters of Amendment 64 hyped the idea that they’d raise money for schools. They didn’t lie—the wholesale tax on pot is entirely dedicated to schools.
Again, $40 million is not enough to build a bunch of schools and change the face of education in the state, but it is producing tangible upgrades through the BEST program, particularly in rural districts.
This most recent year, the state collected $2.6 million above that $40 million cap. That money is transferred to a public school fund, where it contributes a tiny amount to the $5.4 billion cost of running public schools each year in Colorado.
The sales tax raises even more money. Local governments get a 15 percent cut of the state’s special sales tax on pot, which was worth about $10 million in the fiscal year that just ended.
The rest of the 10 percent special sales tax and all of the regular 2.9 percent sales tax (about $76.5 million in the last fiscal year) are free to be spent by the state legislature.
Since marijuana became legal, lawmakers have generally worked out agreements to apply significant portions of that money to enforcing marijuana laws and treatment and education programs to address the impact of marijuana use on society.
BONUS: If you want to see all this in an impressively detailed flow chart from the Governor's Office of State Planning and Budgeting, you’re welcome.
JUST ANOTHER SIN TAX
Marijuana gets a lot of attention because what Colorado did is new.
The reality is—it fits into an existing ecosystem of so-called “sin taxes” already in place here.
None of them were ever enough to keep the entire state government running, though they do help.
For instance, in the 2015-2016 fiscal year, Colorado brought in:
- $55.2 million -- cigarettes & tobacco excise tax
- $42.6 million -- liquor excise tax
- $102.9 million – casino tax
- At $129 million, recreational marijuana has earned its place as a major player in this mix.
Legalized pot was never going to be a magic bullet for all of Colorado’s financial issues, but unlike in the years of pot prohibition, it’s now pitching in more than zero.
Did we leave you wanting more? Brandon answered some of your follow-up pot tax questions.