The Ultimate Guide to Cannabis Taxes in the United States

Cannabis legality in the U.S. is in limbo. A growing majority of states allow for some form of legalized marijuana, but it’s still out of bounds federally. Regardless, the trend continues towards legalization. After all, tax coffers respond well to the budding industry.

Below, we discuss the current state of the cannabis union and related tax issues. If you run a cannabis business — or want to — and need legal or tax advice, let’s talk.

Current State of Cannabis Legality in the United States

Recreational marijuana is legal down the entire left coast: Alaska, Washington, Oregon, Nevada, and California. Colorado, Michigan, Vermont, Massachusetts, and Maine also maintain a recreational cannabis industry, but not all have been implemented yet.

Medical marijuana is legal in Montana, North Dakota, Minnesota, Utah, Arizona, New Mexico, Oklahoma, Louisiana, Arkansas, Florida, Missouri, Illinois, Ohio, West Virginia, Pennsylvania, New York, New Jersey, Maryland, Delaware, New Hampshire, and Connecticut. But, again, not all have established a formal system yet.

But here’s the main problem: The federal government hasn’t passed a law that decriminalizes cannabis. Plus, some lawmakers are still hostile towards legalization. The patchwork of regulations makes for an unstable market environment.

The Key To Securing Cannabis Business Investors

Despite hurdles, the industry is proving lucrative, and social acceptance is rapidly gaining steam. In fact, investors are also turning their attentions towards the cannabis industry. Some, however, remain wary due to extant industry banking issues. But attitudes are also shifting in this arena. Banks that cater to cannabis companies are starting to open for business. Moreover, legislators in the House are poised to pass the SAFE Banking Act, which will indemnify cannabis-friendly financial institutions from related money laundering charges.

Ultimately, the key to securing investors is a solid business foundation, which is best established with the help of a cannabis law attorney.

Current Cannabis Tax Structures in States with Legalized Medical and Recreational Cannabis Industries

Tax structures vary greatly in states with legalized cannabis. In the chart below, we’ve compiled the differences. In addition to the information listed, keep in mind that cannabis growers and retailers must also pay federal income tax, despite marijuana’s national classification as a Schedule I drug — which officials quantify as “worse” than oxycodone, cocaine, meth, and fentanyl. Adding insult to injury, because of the Schedule I label, nearly all cannabis companies are exempt from claiming standard business deductions. In other words, they must pay taxes, but can’t take federal deductions. However, a cannabis tax lawyer can help with this. And don’t forget about city and county taxes. Those bodies can also tack on levies.

Cannabis Tax: By U.S. State

Cannabis tax laws are constantly changing. This chart is accurate at the time of posting, but is liable to change in the coming months. If you have questions, get in touch with one of our cannabis tax attorneys. We work with cultivators, distributors, and retailers across the country.

State Grower / Cultivation / Excise Tax OR Delay Explanation Consumer Paid Sales Tax State Revenue from Cannabis Taxes (Most Recent Available Data at the Time of Posting)
Alaska (Medical and Recreational) Alaska taxes growers $50 per bud ounce / $15 per trimmed ounce sold to dispensaries and stores. Remitted monthly. NA  $11 Million (2018)
Arizona (Medical Only) NA Medical marijuana consumers pay a 6.6% sales tax; cities can tack on an additional 2-3%.  $22.4 Million; Plus City and County Percentages (2018)
Arkansas (Medical Only) Dispensaries must remit a 4% special privilege tax calculated off gross proceeds. Cannabis retailers must remit a 4% special privilege tax calculated off gross receipts. Medical marijuana consumers pay a 6.5% sales tax; cities and counties can tack on an additional sales taxes.
California (Medical and Recreational) $9.25 per ounce of flowers; $2.75 for leaves; Retailers may have to remit an excise tax to distributors depending on the supply line. Consumers pay a 15% excise tax and 7.25% sales tax on cannabis products.  $300 Million (2018)
Connecticut

(Medical Only)

Dealers pay $3.50 per gram on all cannabis products. Consumers pay the state’s standard sales tax of 6.35%.
Colorado

(Medical and Recreational)

Cultivators and qualifying cannabis product manufacturers must pay a 15% excise tax. Consumers pay 2.9% sales tax for medical users who don’t have a tax exempt prescription. Recreational users pay a 15% sales tax on cannabis products. Colorado recently announced that it passed the $1 billion mark for cannabis tax revenue.
Delaware (Medical Only) None None None
Florida (Medical Only) Though there aren’t any established cannabis taxes; dispensaries must pay over $50 million for the rights to one of 14 dispensary licenses. None None
Hawaii (Medical Only) 4% Excise Tax; 4.5% Excise Tax on Oahu NA NA
Illinois (Medical Only) Until July 1, 2020, cultivators of medical marijuana must pay a 7% privilege tax on the per-ounce sale price. Medical marijuana consumers pay a 1% pharmaceutical sales tax. NA
Louisiana (Medical Only) Despite having passed a medical marijuana law in 2015, patients still don’t have access to products and the state has yet to finalize the taxing structure. None None
Maine (Medical and Recreational Legalized but not yet Implemented) Cultivators will pay a $335 per pound excise tax on flowers and mature plants and a $95 per pound tax on trim. Immature plants and seedlings will also be taxed at the rate of $1.50. Seeds will incur a 30 cent per seed excise tax. All must be paid monthly. Recreational cannabis consumers will pay a 10% sales tax. Medical marijuana revenues have dropped over the past three years, but legislators are hopeful that the stream will increase when recreational cannabis hits shelves.
Maryland (Medical Only) None None None
Massachusetts (Medical and Recreational) 10.75% retail excise tax passed on to buyers and remitted by retailers. Recreational cannabis consumers pay a 17% sales tax on cannabis products. 6.25% is the normal sales tax, and 10.75% is a retail excise tax passed on to buyers. Medical marijuana users don’t pay sales tax. The Massachusetts Department of Revenue estimates that the state could collect between $44 million and $82 million in marijuana tax revenue in 2019.
Michigan (Medical and Recreational) Retailers remit a 6% tax charged to customers. Medical and recreational cannabis users pay the 6% sales tax on marijuana products. 2019 is the first year that Michigan has collected sales tax on recreational cannabis products. They estimate bringing in over $50 million in state revenue.
Minnesota (Medical Only) None None None
Missouri (Medical Only) Missouri recently legalized medical marijuana but has yet to finalize a tax schema. NA NA
Montana (Medical Only) Medical marijuana providers pay a 2% tax on gross cannabis and cannabis product sales. It must be remitted quarterly. NA $1.8 million (2018)
Nevada (Medical and Recreational) Cultivators pay a 15% excise tax. Nevada also charges a 10% excise tax at the retail level. Medical marijuana users are exempt from paying the 10% retail excise tax. 2019 Estimate: $70 million
New Hampshire None None None
New Jersey None Medical cannabis users pay a 6.625% sales tax NA
New Mexico (Medical and Recreational) Sellers of medical marijuana are responsible for submitting a gross receipts tax, which varies. Recreational cannabis sales have yet to start. None NA
New York (Medical Only) Sellers of medical marijuana must pay a 7% excise tax. None NA
North Dakota (Medical Only) Although North Dakota recently legalized medical marijuana, they have yet to work out a tax schema. NA NA
Ohio (Medical Only) Since the program recently started, officials are still legislating related taxes. Currently, medical cannabis users pay the standard 5.75% sales tax. NA
Oklahoma (Medical Only) Legislators implemented a 7% excise tax. Medical marijuana users pay the standard sales tax, which is between 8.6% and 4.1% depending on region. The program recently started, but analysts estimate $20 million tax revenue for the state in the upcoming year.
Oregon (Medical and Recreational) NA Recreational cannabis stores are required to charge between 17% and 20% sales tax (depending on area) to consumers. US $85 Million (2018)
Pennsylvania 5% excise tax on gross receipts. NA US $2 Million (2018)
Utah Although Utah recently legalized medical marijuana, they have yet to work out a tax schema. NA NA
Vermont (Medical and Recreational) Although Vermont recently legalized medical marijuana, they have yet to work out a tax schema. NA NA
Washington (Medical and Recreational) None Consumers pay a 37% sales tax on cannabis products. US $319 Million
Washington, D.C. (Medical and Recreational) Although people are legally allowed to grow and smoke their own plants, it is still illegal to sell cannabis. NA NA
West Virginia Growers pay a 10% excise tax paid on gross receipts. None NA

Additional Cannabis Tax Tips

Two other cannabis tax tips:

  • Section 280E of the IRS Code addresses tax deductions for businesses that the federal government categorizes as illicit drug traffickers, which can include cannabis businesses.
  • When businesses receive more than 10,000 in cash from a single buyer, they must submit a Form 8300. This rule affects many growers. If you haven’t already, look into it.

Cannabis Law Attorneys

In these nascent stages of the cannabis industry, it’s most important for businesses to work with an attorney who knows the ins-and-outs of cannabis tax law. That’s where we come in. Our team of accountants and attorneys supports the industry and has devoted itself to learning how to help marijuana companies grow and prosper.

Get in touch today to begin the conversation. We have the answers to your questions.

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