All over the country, cannabis businesses and recreational marijuana consumers are feeling the painful bite of marijuana taxes, and it’s not doing much good for the industry’s sustenance.
Even California’s legal cannabis industry is falling due to the high taxes despite being the nation’s largest and most profitable market segment.
In all the chaos, there is some sort of respite for medical marijuana patients. Thanks to medical marijuana tax exemptions and very low tax rates, medical cannabis is still relatively cheap.
Yet, with marijuana taxes in question, there are many things to talk about: where do marijuana taxes go? Is medical marijuana tax deductible? What are medical marijuana tax prices?
And most importantly, what’s the link between marijuana legalization and taxes?
Is Cannabis Taxed? Understanding Marijuana Legalization and Taxes
Taxes are a crucial part of marijuana legalization in many states. For many proponents in various states’ legislative chambers, taxing marijuana is an undeniable economic benefit significant enough to get the balls rolling for cannabis legalization.
The logic is that, legalized or not, it is nearly impossible to eliminate cannabis sales as people will always seek cannabis for its potential health benefits. If left illegal, the state would keep spending taxpayers’ money on cannabis-related arrests while deriving little to no money from the cannabis market.
For context, in 2010, states spent approximately $3.6 billion on marijuana-related arrests. That’s a lot of money that could go into various economic developments in all the states.
So, it’s no surprise that various legislative proponents of cannabis legalization proposed a reversal of marijuana criminalization policies on the basis that, instead of wasting funds on unnecessary marijuana-related arrests, cannabis could be legalized and taxed. Thus began the unusual marriage of cannabis legalization and taxes across states.
Today, states like Nevada, Colorado, and Washington have marijuana taxes providing over 1.5% of their total state revenue.
Also, the Marijuana Policy Project (MPP) reports that states have generated over $15 billion from recreational marijuana taxes alone.
But, where do marijuana taxes go? We will get on that in a bit, but you should know more revenue will come from cannabis legalization and taxes.
Some states are capitalizing on the Green Rush to ideate on and authorize the establishment of various forms of cannabis businesses, with hopes of improving tax revenues from medical cannabis tax and recreational cannabis tax.
The laws on marijuana taxes are predicated on various factors and considerations across weed-legal states. Therefore, medical marijuana and recreational marijuana tax prices and tax types vary across the states.
We’ll focus on those directly affecting the consumers.
Types of Marijuana Taxes
Weed-legal states opt to tax marijuana based on three main factors – weight, potency, and percentage of price. Hence, we have three types of marijuana taxes:
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- Percentage-of-price tax: This is a common tax type across industries – including the cannabis industry – and it’s much like the regular retail sales tax. The end-user is taxed a set percentage on the value of their purchase. That is, if your state instituted a 3% tax on marijuana and you make a purchase amounting to $10, you’ll pay an additional $3 in taxes.
- Weight-based tax: This is a type of tax levied per ounce of cannabis material; whole plant, leaves, or flower, with tax rates increasing respectively.
- Potency-based tax: A. In this case, THC content is the benchmark for taxability. Marijuana products with less than 35% THC content are taxed at 10% of retail price, while those containing more than 35% THC are taxed at 25% of retail price. The state of Illinois initially adopted this tax type.
Aside from the state taxes, local governments also levy excise taxes. In states where it’s applicable, the state government usually cap local excise taxes on cannabis to be at a lower rate, usually not more than 5%.
Medical Cannabis Tax Prices
Between medical and recreational marijuana, medical marijuana has been famously known for having significantly lower prices despite offering access to a more diverse catalog of top-shelf products.
One of the main reasons medical cannabis is substantially cheaper than recreational marijuana in many states is because of the lower state and local taxes levied on medical marijuana.
In fact, not all states tax medical marijuana, and some of those that tax medical marijuana do so at such a low rate because they do not count medical marijuana taxes as an important avenue for revenue generation.
Therefore, most states do not consider MMJ tax as a part of cannabis tax, and consequently, they don’t have reports on medical marijuana tax. Additionally, most states heap the burden of medical cannabis taxes on the business – not the patient making the purchase.
So, what is the sales tax on medical cannabis? Below is an overview of medical marijuana tax prices across states.
States with Sales and Use Tax Exemption for Medical Cannabis Cardholders
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- California
- Connecticut
- Florida
- Maryland
- Massachusetts
- Minnesota
- Nevada
- New Jersey
- Pennsylvania
- New York (excise tax on gross receipts from the dispensaries)
- Utah (although taxes are imposed on the purchase of medical cannabis paraphernalia)
- West Virginia (with gross receipt tax of 10% on growers)
States That Subject Medical Marijuana to General Sales Tax
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- Alabama (at 9% of gross proceeds)
- Arizona
- Colorado
- Hawaii
- Illinois (at 1% state rate)
- Iowa
- Maine
- Michigan
- Mississippi
- Missouri (4% medical marijuana tax applies to all retail sales)
- New Mexico (gross receipt tax imposed on dispensaries)
- Ohio
- Oklahoma
- Washington (with limited exemptions)
- Wisconsin (tax on CBD and hemp products)
Is Medical Marijuana Tax Deductible?
No, medical cannabis is not deductible from federal taxes.
There are some lines of argument suggesting that since medical marijuana is a medical expense, patients should have an option on Schedule A to allow them to deduct their medical marijuana purchase.
However, medical marijuana falls short of this expectation solely for the fact that cannabis is still federally illegal.
The Internal Revenue Service (IRS), in charge of creating and enforcing the U.S. federal tax laws, has clarified that, for federal purposes, medical cannabis is not tax deductible.
In fact, the IRS does not allow tax deductions on any marijuana-related expenses, not even for marijuana business expenditures.
Ironically, marijuana businesses still have to pay their federal taxes despite federal illegality.
How about the state side of things? Is medical marijuana tax deductible in any state? The laws on deductions for both medical cannabis tax and recreational cannabis tax vary across states.
According to Wolters Kluwer, the states listed below allow for deductions on corporate or personal income tax or both.
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- States that allow deductions for corporate and personal income taxpayers: Colorado, Hawaii, Michigan, California, New Mexico, Oregon, Vermont, Montana, Minnesota, and Maine
- Corporate income tax deductions only: Louisiana
Recreational Cannabis Tax Prices
Unlike medical marijuana, which is either tax-exempt or simply subject to general sales tax in most states, recreational marijuana is taxed exorbitantly in most states.
However, the interlink between recreational marijuana legalization and tax laws across various states is highly divergent. Consequently, there is no tangible sense of uniformity on how states tax recreational marijuana.
The one thing that is seemingly certain across the board is that each state has at least two tax levies on recreational marijuana use—the state’s marijuana sales tax and the local excise tax. In most states, these taxes are in addition to general sales tax.
At the lower range of recreational marijuana taxes at retail price, some examples include:
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- Missouri marijuana at 6% state tax and no more than 3% local tax.
- Nevada marijuana taxed at 10% of retail price
- Michigan marijuana taxed at 10% of retail price
At the mid-range of recreational marijuana taxes at retail price, some examples include:
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- Oregon marijuana taxed at 17% of retail price
- Colorado marijuana taxed at 15% sales tax and about 3% local tax.
- Arizona marijuana taxed at 16% of retail price.
With a 37% cannabis excise tax, Washington state marijuana has the highest tax. Only Illinois comes close with a 25% tax on any product with more than 35% THC and a 20% tax on all edibles.
Montana and Virginia impose 20% and 21% excise tax, respectively.
Clearly, a lot of sin taxing is going on in the cannabis industry, so it’s only natural to ask a crucial question: Where do marijuana taxes go?
Where Do Marijuana Taxes Go?
Economic development is a key talking point behind marijuana legalization and tax imposition in all weed-legal states. However, different states take different paths to achieve this economic development.
Despite the divergence, some themes recur across the states, thus providing a multi-pronged answer to the “where do marijuana taxes go?” question.
Some of the recurring themes include the following:
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- Social equity programs: This includes tax funds to cover the cost of marijuana-related conviction expungement and economic empowerment in communities most affected by the war on drugs.
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- State and local government bills: A certain percentage of tax revenues are remitted to state or local coffers to help cover accrued bills.
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- Veteran care: Nearly all states direct a part of their tax funds to the relevant veterans’ administration. Additionally, many marijuana businesses, including Elevate Holistics, offer veterans’ discounts on their services.
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- Education: Funding for drug addiction awareness, after-school programs, building libraries and schools, school lunch, and other forms of public-school funding.
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- Public health/anti-drug programs: Funding for alcohol and drug rehabilitation/treatment and other substance abuse prevention programs.
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- Environmental programs: Funding for wildlife and general eco-conservation.
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- Institutions development: Funding for mental health institutions, police departments,
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- Research and regulation: Although this is not a recurring theme (this funding is currently only available in California), various states have broached the idea of funding research while debating marijuana legalization.
Note: States have some sort of cannabis general fund or cannabis tax cash fund (could come in some other nomenclature) where the taxes are first remitted before distribution.
Save Money on Marijuana Taxes With An MMJ Card From Elevate Holistics
It is true that when you ask, “Is medical marijuana tax deductible for federal taxes?” the answer you will get is no.
However, it is also true that medical marijuana is tax-exempt in many states, and even in states where it is taxed, the rates are too low to be compared to the heavily taxed recreational marijuana.
Hence, medical marijuana is incredibly cheaper in most states.
The low rate of marijuana taxes, alongside access to high-quality, lab-certified cannabis products, makes medical marijuana the best choice for anyone with a qualifying medical condition in any legal state.
Unfortunately, people are often wary of scheduling an appointment for medical cannabis evaluation.
At Elevate Holistics, we have wrapped all MMJ card acquisition processes into a 30-minute, online, hassle-free experience so there are no stumbling blocks to stop you from legally acquiring your medical card in any legal state – and save money on marijuana taxes!
We have helped over 100,000 patients get their marijuana cards across the U.S., and we can help you, too.
Click here or below to get your own MMJ card right from home.
