Although marijuana is illegal under federal law, cannabis businesses in the United States still pay federal taxes on gross income. They are not allowed any deductions or credits for business expenses, by law, which can mean an effective federal tax rate as high as 90%.
The US government collected an estimated $4.7 billion in taxes from cannabis companies in 2017 on nearly $13 billion in revenue. Unlike most American businesses, which pay electronically or by check, most of these marijuana firms are unbanked and were forced to pay their federal taxes in cash, something the IRS is still trying to get a handle on.
At the state level, marijuana for non-medicinal adult use is legal in nine states and taxable in seven, which also impose costs on each sale:
|State||Grower tax, flower||Grower tax, trim||Excise and sales taxes|
|Colorado||None||None||15% on sales from grower to retailer; 15% on retail sales|
|Massachusetts||None||None||10.75% state excise tax; local sales tax capped at 3%|
|Nevada||None||None||15% on sales from grower to retailer; 10% on retail sales|
|Oregon||None||None||17% state excise tax; local sales tax capped at 3%|
|Washington State||None||None||37% state sales tax|
According to the Tax Policy Center, a partnership between the Urban Institute and the Brookings Institution, states with marijuana taxes put a portion of the funds toward the following:
- Alaska steers 50% of its cannabis revenues to its general fund, and 50% to crime reduction programs.
- California uses its cannabis revenues for administrative costs related to legalization, with extra funds going toward economic development, academic studies, and youth programs.
- Colorado earmarks its cannabis revenues for education.
- Massachusetts pays for various public safety programs with the cannabis taxes it collects.
- Nevada uses its cannabis revenues for education programs and to supplement its rainy day fund.
- Oregon finances education and drug treatment-and-prevention programs with its cannabis revenues, with some going to local governments.
- Washington State uses its cannabis revenues for healthcare.
Unlike cannabis companies, recent changes to the law now allow industrial hemp producers to deduct ordinary business expenses for tax purposes—as long as their product contains no more than 0.3% THC.