Why cannabis taxes won’t save school budgets

cannabis taxes
(AP Photo/Ed Andrieski)


Colorado’s former Director of Marijuana Coordination, Andrew Freedman, and Colorado’s former Director of the Marijuana Enforcement of Division, Lewis Koski, explains why cannabis tax revenue should not be the driving force behind legalization.

Taxing marijuana is intricately tied to legalizing marijuana. To many, it is the main incentive for legalization. While the tax revenue from marijuana sales is not trivial, it is important not to overestimate the impact this revenue can have.

Unfortunately, no state can rebuild all its roads, pay all its teachers more, or solve significant budget shortfalls with marijuana tax revenue.

Colorado is on pace to collect close to $240 million in total revenues (taxes and fees) for fiscal year 2016-2017 from over $1 billion in sales. That is a lot of money. But when you consider the total state budget for Colorado is nearly $27 billion annually, the tax revenue generated from lawful marijuana sales comprises less than 1% of total tax revenue. Local jurisdictions that levy additional taxes on marijuana sales are likely to see revenues account for similar or less of total budget amounts annually.

Marijuana tax revenue cannot, by itself, solve all of a state’s problems. In Colorado, the question is often asked “where has all that marijuana revenue gone that was supposed to help our schools?” The state constitutional amendment that legalized marijuana earmarked $40 million to school construction. Colorado did, in fact, put the $40 million into a school construction fund last year. That fund received $2.8 billion in requests—70 times the value of the marijuana revenue! And if the state wanted to use every penny of revenue to build our roads (and not fund our marijuana regulatory system), we could afford less than 40 miles of new highway. In short, marijuana revenues cannot fund billion-dollar budget items.

Why don’t we just increase the tax rate? First, taxes on product get passed onto the consumer. A significantly higher tax rate will increase the price of marijuana in the regulated market and drive consumers to the black market. That has already happened with tobacco taxes; and marijuana can easily be overtaxed, too. Taxes are already levied at the wholesale and retail tiers and additional taxes can be added at the county and municipal level; add to that licensing fees and significant costs are passed on to consumers. Second, as the regulated marketplace matures from more licensed producers and more efficient growing practices, the supply of regulated marijuana will increase and the price of marijuana will drop precipitously. Even with a higher tax rate, the total revenue received from marijuana sales will likely drop in the future. And finally, even if it were possible to raise more significant revenue, it would be unsound public policy. Becoming reliant on marijuana revenue for public services would put government in the position of advocating for more marijuana sales which could come at the expense of public health and safety.

All that said, marijuana revenue has done tangible good in Colorado. It has paid for after school activities, anti-bullying programs, youth prevention campaigns, judicial diversion, affordable housing, and substance abuse treatment and homeless programs.

Tax revenue should not be the driving force behind marijuana legalization. At its heart, the debate over marijuana legalization should be about whether a tax and regulate system is a better way to govern marijuana sales than prohibition and incarceration. We should be focused on what systems can best maintain a safe community, create an equitable justice system, protect public health, positively impact the economy, avoid costs, and provide sound drug policy.

[Andrew Freedman is the former Director of Marijuana Coordination for the state of Colorado; and a principle at the consulting firm, Freedman & Koski, Inc. Lewis Koski is the former Director of Marijuana Enforcement Division and Deputy Senior Director of Enforcement for the Department of Revenue for the state of Colorado; and a principle at the consulting firm, Freedman & Koski, Inc. whose mission is to ensure the successful and responsible implementation of legalization across the U.S.]