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1 Adam Hoffer, Cannabis Taxation: Lessons Learned from U.S. States and a Blueprint for Nationwide Cannabis Tax Policy 1 (2023)

handle is hein.taxfoundation/cbstxnls0001 and id is 1 raw text is: *STAX FOUNDATION Cannabis Taxation: Lessons Learned from U.S. States and a Blueprint for Nationwide Cannabis Tax Policy Adam Hoffer Director of Excise Tax Policy December 2023 Key Findings • Twenty-one states now tax recreational marijuana (also known as cannabis)-Alaska, Arizona, Califor- nia, Colorado, Connecticut, Illinois, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Ne- vada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington. • The unique issues raised by cannabis taxation created a wide variety of tax designs. These include ad valorem rates applied at the wholesale and retail levels, and ad quantum taxes levied separately on cannabis seeds, flower (mature and immature), leaves, trim, clones, whole plants, concentrates, and edibles. These rates can vary by tetrahydracannibol (THC) content in the product. • The experience of taxed legal cannabis markets demonstrates that tax rates should be low enough to allow legal markets to undercut, or at least gain price parity with, the illicit market. • The revenue potential from cannabis is substantial. States collected nearly $3 billion in marijuana rev- enues in 2022. Nationwide legalization could generate $8.5 billion annually for all states. • Tax consistency across jurisdictions will be important if interstate commerce is legalized. • Potency-based taxation is ideal. Until testing becomes less costly, however, a weight-based tax or a hybrid weight-based tax based on a limited number of potency categories is the most effective tax design. The Tax Foundation is the world's leading nonpartisan tax policy 501 (c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 laxfoundation.org

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