Despite Revenue Potential, Moderation Will Be Key to Successful Legalization

In the first six months of 2014, Colorado pulled in around $12 million in sales and excise tax revenue from the sale of recreational marijuana. This bodes well for Maine as we take steps toward legalization. As policymakers here craft a framework to govern retail sales of recreational marijuana they will naturally be seeking to optimize tax revenues and limit black market sales. Colorado’s experience highlights the prospects for success, and is also instructive as to how Maine can best achieve these twin goals.

The millions of dollars in tax revenue, which Colorado has collected through the first six months of 2014, is only a portion of the state’s original fiscal prediction that it would collect $33.5 million through June 31. The potential for tax revenue from sales of recreational marijuana is clearly enormous, and Colorado seems to have miscalibrated its own efforts to reach this full potential by overtaxing sales.

Colorado’s overall tax rate on retail marijuana totals 27.9 percent. This includes a 15 percent excise tax, a 10 percent special sales tax, and the 2.9 percent general sales tax, plus any applicable local taxes. This is a lot of tax and it appears to be, at least in part, passed on to the consumer. It is not surprising then that estimates from Colorado suggest that legal marijuana is priced at the upper-end of the illegal market. As a result, the state is collecting millions but still losing sales to the black market where tax revenue can’t be collected and use and distribution can’t be regulated.

Here in Maine, policymakers are already examining legalization, and how to best build on state revenues from medical marijuana sales. Medicinal marijuana is taxed at the State’s standard sales tax rate of 5.5 percent (and 8.5 percent for edible products). At these rates, the State is estimated to gather over $600,000 in tax revenue from Maine’s eight dispensaries on an annual basis (not including the combined $15,000 collected annually in renewal fees per dispensary site), and over $2.3 million from the 1,400 caregivers in Maine. While Maine’s medical marijuana industry has been lucrative for the state and been ranked at the top of the charts nationally, it’s now up to our policymakers to build on this success as we move toward legalization of recreational marijuana.

This means taking a long hard look at the lessons from Colorado. As more data becomes available in Washington (with its effective tax rate of 44 percent on recreational marijuana) we should look to their experience as well. Legalization of marijuana, if done right, should result in significant revenues for the Maine treasury and the eventual elimination of Maine’s black market. Policymakers need to carefully evaluate any tax structure and avoid overtaxing retail marijuana to be sure these goals are achieved.


Dan Walker

About Dan Walker

Partner at Preti Flaherty Beliveau & Pachios LLC; member of Governor's Task Force on implementing the medical cannabis law 2009-2010; Wellness Connection of Maine corporate counsel