How Taxes on Recreational Marijuana Are Boosting Colorado’s Economy

It's Early, But The Weed Tax Is A Windfall For States
It’s Early, But The Weed Tax Is A Windfall For States

The numbers are in, and the legal sale of recreational marijuana is, by all accounts, a success in Colorado, having earned $2 million in taxes related to the sale of recreational marijuana in just the first month of 2014. Unlike Washington State, which legalized the sale of recreational marijuana in the same 2012 election, Colorado taxes marijuana at a variety of levels: there is a 10% statewide sales tax for recreational marijuana in addition to the state’s 2.9% sales tax and a 15% “retail marijuana excise tax,” among others, turning sales of marijuana into a veritable windfall for the state.

These profits have led to questions on both sides of the political aisle, both among those who favored the legalization effort and those who were against it. One major talking point to rise from the promising tax profits has everyone talking: how the money from marijuana sales will be spent. Last year Colorado voters voted to put $40 million of the funds toward education and school construction, but the state has yet to decide what to do with the rest of the money. By any measure, this is an excellent problem to have.

Pot Tourism: A Secondary Growth Industry

Approximately half of the $1 million spent at legal pot stores every day comes from out-of-state tourists looking to smoke legal, quality marijuana. The money from these happy tourists doesn’t just affect the recreational marijuana market, either: tourists also spend at other establishments, restaurants, hotels and other recreational pursuits. It’s still unclear how large an impact marijuana tourism will have on the state’s economy, but given that tourism in Colorado brings in $11.2 billion annually, even a small slice of the pie will bring in big bucks.

What to Do With All That Tax Money: A New Sin Tax?

In April a Colorado legislative committee approved a caution spending plan for marijuana tax revenue: the money will largely fund prevention of youth drug use, subsidizing addiction treatment programs and starting research and publication campaigns. While the governor originally proposed nearly $75 million on these efforts, but scaled back his proposal to around $54 million; the Joint Budget Committee calls for spending of up to $31.4 million. Those in favor of marijuana legalization praised the move, saying that it offers a neat solution to the concern that the law be enforced and that retailers be required to do everything by the book.

As legislation and tax revenue spending continue to be discussed, one thing is certain: marijuana legalization in Colorado is a windfall for the state, and new businesses are being developed to accommodate the new influx of tourists and visitors. With each of those tourists likely to spend his or her money on lots of goods and services besides marijuana, the potential for increased tax income is enormous.

The “highest state,” thanks to slow early growth, may not have to find answers to the many questions about how to spend the increased tax revenue this year. Recreational marijuana is far from being an unopposed success, but detractors have begun to fall silent in the wake of such favorable early reports. Even the opposition’s claims that marijuana legalization would cause an uptick in crime have turned out to be largely unfounded. In many circles legal weed is starting to be looked at no better or worse than the vice of legal gambling; which also brings in enormous tax revenue.  But as the industry continues to grow and bring in ever greater amounts of money, it seems unlikely that all the proceeds will be funneled directly into anti-drug campaigns. Where the rest of the money will go remains to be seen.