DENVER — Editor's note: This story was first published in 2016. 9NEWS has updated the math to reflect changes in tax rates and revenue collected, but the core of the story remains accurate.
Colorado continues to pull in a significant amount of money by taxing recreational marijuana, but it’s not enough to pave the streets in gold.
Some Coloradans have been left to wonder why all that money hasn’t revolutionized life in our state, in part because supporters of legal pot hyped the potential to raise millions. So far, legal pot sales in Colorado have generated about $930 million for state coffers since legalization. The state should cross the $1 billion mark for pot revenue sometime in 2019.
What follows is our attempt to make the taxes on pot as simple as possible to understand.
ONE-EIGHTH OF WEED
Let's start small—with one-eighth [ounce] 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 an eighth [ounce] bag of marijuana for let's just say for the sake of argument $25.
That $25 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 $117.15 per pound, which means our eighth bag has already earned the state $0.92 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.
The math
$25 – eighth-ounce marijuana
$3.75 – 15 percent special state sales tax***
$1.19 – 4.75 percent regular Denver sales tax (including RTD/SCFD tax)
$1.38 – 5.5 percent special Denver sales tax^^^
---
$31.32 – GRAND TOTAL
***The state changed its tax rate for marijuana in 2017. The tax rate used to be 10 percent plus 2.9 percent - now it is just 15 percent. The 2.9 percent tax rate still pertains to items sold in a pot shop that are not pot, however.
^^^Denver upped its special tax to 5.5 percent from 3.5 to help pay for an affordable housing initiative
Marijuana is a heavily taxed product in Colorado. If you count the excise tax in this example, the total tax paid on this purchase is $7.24. That makes the effective tax rate 30 percent on $24.08 worth of marijuana.
Despite that, Eric Escudero with the city's Licencing and Excise office said the city brings in more revenue from the standard tax on clothes than on marijuana.
HOW IT ADDS UP
The heavy taxation of pot does add up—but it’s simply not enough money to revolutionize the way Colorado pays for government services. Since local taxes on pot vary, we’re going to confine this section to how the state-level taxes on marijuana add up.
In the calendar year that ended in December, all marijuana sales in the state brought in $266,529,637. In the first month of 2019, the state received $21 million in revenue from pot sales.
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 the state's education budget was over $5.6 billion. Denver's own General Fund sits at $1.3 billion a year with marijuana tax revenue just making up 3.5 percent of it (page 10).
Consider for a moment that in that same fiscal year the state collected (page 72) $12.7 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 2.1 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 2.1 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
Excise tax
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.
The first $40 million goes to a state program called BEST (Building Excellent Schools Today), which awards grants to local school districts to build and improve school facilities.
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 $20 or so million above that $40 million cap. That money is transferred to a public school fund, where it contributes a tiny amount to the $5.6 billion cost of running public schools each year in Colorado.
Sales tax
The sales tax raises even more money. Local governments get a 10 percent cut of the state’s special sales tax on pot, which was worth about $18 million in the fiscal year that just ended.
The rest of the 90 percent special sales tax and all of the regular 2.9 percent sales tax (about $174 million in the last fiscal year) are allocated by the state for three things.
Note: the math is about to reach "state government" levels - with the following percentages being out of the remaining 90 percent of the state sales tax money.
Exactly 12.59 percent is given to the state Public School Fund and is then distributed to all local school districts. After that, 15.56 percent is allocated to the state's general fund that can be used for anything. The remaining 71.85 percent is sent to the Marijuana Tax Cash Fund.
Created in 2014, the money put into the Marijuana Tax Cash Fund is required to be spent the following year on health care, monitoring marijuana health effects, health education, substance abuse prevention, treatment programs and law enforcement. All the state's money made from medical marijuana also goes to the Marijuana Tax Cash Fund.
BON2US: If you want to see all this in an impressively detailed flow chart from the state Department of Revenue, you’re welcome.
JUST ANOTHER SIN TAX
Marijuana gets a lot of attention because what Colorado did is new. Even though more and more states each year legalize marijuana, Colorado was the first. Sure, other states' sales are much higher than ours in some cases, but the reality for Colorado 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 2017-2018 fiscal year, Colorado brought in:
- $192 million – cigarettes & tobacco excise tax
- $47 million – liquor excise tax
- $124 million – gaming tax
- At $266 million, recreational marijuana has earned its place as a dominant 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.
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