Cannabis Legalization Netted US More Than $3.7 Billion in 2021

American states have generated more than $11.2 billion in tax revenue from state-legal recreational cannabis since sales began, according to a new report released this week by the Marijuana Policy Project.

The report also found that states with a legal adult-use cannabis market collectively generated more than $3.1 billion in 2021 alone. This represents a 34 percent increase over tax revenues reported for 2020. The new report did not evaluate revenue generated by taxable medical cannabis sales, or include revenue generated by additional local sales taxes in its figures.

Cannabis legalization in the US

To date, eighteen states have implemented laws to create a legal and taxable adult-use cannabis market, though sales have still to begin in six of these. Several other states — including Maryland, Missouri, Ohio, Rhode Island, and South Dakota — are also expected to legalize recreational cannabis use in the near future, according to the report.

In many of these states, the tax revenue generated from recreational cannabis sales is earmarked for investment in social services, such as substance abuse treatment programs and veterans’ services, as well as for reinvestment in the communities that have been disproportionately affected by the American war on drugs.

“Our report is further evidence that ending cannabis prohibition offers tremendous financial benefits for state governments,” Toi Hutchinson, president and CEO of the Marijuana Policy Project, said in a statement.

The big hitters: California, Washington, Colorado

The state of California collected approximately $1.29 billion in state tax revenue from adult-use cannabis sales, which was the single largest amount of cannabis tax revenue recorded by a state in 2021.

Californian state law means that a significant portion of the tax revenue generated by legal cannabis sales is directed to local nonprofits. As of April 2021, the state had awarded nearly $100 million to local organizations that serve the communities and individuals harmed by prohibition. In June of 2021, the state announced a further $29.1 million would be spent across 58 grants to “help advance health, wellness & economic justice” in these communities.

Washington State recorded the next largest total, collecting approximately $630 million in 2021. Washington was one of the first US states to approve adult-use cannabis legislation, voting alongside Colorado in November 2012 to open a state-legal recreational cannabis market. For every $1 billion in cannabis tax revenue made in Washington State, it is estimated that nearly $600 million is reinvested into state healthcare initiatives.

Colorado is thought to have raised more than $1.8 billion in state tax revenue since cannabis sales began in 2014. Separately, the Colorado Department of Revenue reports that $538 million of this has been dedicated to improving the state’s public school system. Local sales tax revenues are also significant in Colorado — the report notes that the city of Denver exercises its own 5.5 percent sales tax and is estimated to have collected more than $237 million since 2014.

The 2021 state-by-state recreational cannabis tax revenues for other states with established recreational markets (i.e. sales beginning before 2020) include:

• Alaska: $28,900,231
• Massachusetts: $227,474,842
• Michigan: $209,912,278
• Nevada: $159,885,501
• Oregon: $177,773,944 

The new kids on the block: Colorado, Maine, Arizona

Despite only beginning state-legal recreational cannabis sales in January 2020, Illinois has collected nearly $680 million in total tax revenue, with around $424 million collected in 2021. Illinois’ law taxes retail cannabis based on its potency and places significant emphasis on social equity measures. Mental health services receive 20 percent of the state’s annual recreational cannabis tax revenue, with another 25 percent used to fund the Recover, Reinvest, and Renew Program, which exists to support community organizations and initiatives in disadvantaged neighborhoods.

Despite approving the necessary bill in November 2016, legal recreational cannabis sales did not begin in Maine until October 2020. So far, the state has collected nearly $16.5 million in sales tax revenue, with state legislation dividing this into two funds — one that supports public health initiatives and another for law enforcement training.

In Arizona, sales began in late-January 2021. The state collected $153.8 million throughout 2021, with one third being distributed to community colleges and an additional 10 percent supporting public health and criminal justice programs.

Most recently, Montana began adult-use cannabis sales in January 2022, with the revenue to be split between substance abuse recovery programs, conservation efforts, and services for veterans and their families.

Six additional states have also approved bills to legalize, regulate, and tax recreational cannabis sales. In order of population, these are New York, New Jersey, Virginia, Connecticut, New Mexico, and Vermont.

“The legalization and regulation of cannabis for adults has generated billions of dollars in tax revenue, funded important services and programs at the state level, and created thousands of jobs across the country,” Hutchinson said.

“Meanwhile, the states that lag behind continue to waste government resources on enforcing archaic cannabis laws that harm far too many Americans.”