Extras on Excise: Just in Time for 4-20—A Few Marijuana Legalization “Highlights”

Today is April 20, a.k.a. 4/20, the unofficial holiday in the U.S. celebrating all things cannabis. This year, supporters of legal marijuana have cause for celebration, as Pennsylvania joined the ranks of 23 other states this past Sunday by enacting medical marijuana legislation, while recreational marijuana legalization efforts continue in several states. 

In honor of the occasion, below are a few highlights of marijuana legalization and taxation efforts in recent weeks.

Perhaps the most significant development in recent days is Pennsylvania’s enactment of S.B. 3, making it the 25th medical marijuana jurisdiction in the U.S. But the state also becomes one of only a handful of states that impose an excise tax on medical marijuana. 

Many jurisdictions do not levy a tax on medical marijuana except for sales tax. For instance, Colorado, which has fully legalized medical and recreational marijuana, imposes excise taxes on only retail marijuana, while sales tax applies to both medical and recreational marijuana.  

In contrast, medical marijuana in Pennsylvania will be exempt from the state’s 6 percent sales tax, while marijuana sales by growers or processors to other growers, processors or dispensaries are subject to a 5 percent gross receipts excise tax. But the state won’t be cashing in on that additional revenue any time soon. Pennsylvania has to implement the new law and set up the regulatory infrastructure before medical marijuana sales can begin.

While Pennsylvania has had its moment in the spotlight this year, medical marijuana supporters continue the push for legalization in other states, through either voter-approved ballot initiatives or legislative measures. 

There are multiple ballot initiatives underway in Missouri that would legalize medical marijuana; one initiative would impose the state’s 4 percent sales tax on marijuana. If enough signatures are gathered, the initiatives will appear on the November ballot. 

Similar efforts are underway in Ohio, after a ballot initiative for full legalization suffered a blow in the 2015 election and failed to achieve voter approval. The current initiative is for medical marijuana only and does not legalize recreational marijuana. 

Legal cannabis advocates are also pushing for full legalization in several states. 

Vermont’s legislature is currently considering S. 241, which legalizes possession and allows personal cultivation of marijuana. The bill, according to the version passed by the Senate, would impose a 25 percent special sales excise tax in addition to regular sales tax, but medical marijuana would be exempt from the special excise tax. 

Rhode Island is also considering H. 7752. The bill would impose excise taxes of $50 per ounce for dried flowers, $10 for plant seedlings, and $15 for all other parts of marijuana plants. It would also impose a special 10 percent sales tax on retail, but not medical, marijuana sales.

No jurisdiction in the U.S. has legalized marijuana through their legislature, so all eyes are on these states to see if one of them will be the first state to do so. 

Following the traditional legalization path, Nevada will see Question 2 on the November ballot. This initiative, if approved, would legalize recreational marijuana and impose a 15 percent excise tax on wholesale sales; state and local sales taxes would also apply.

A Massachusetts initiative would impose a 3.75 percent special sales tax on recreational marijuana. Ballot initiatives that would fully legalize and tax marijuana are also underway in Arizona, California and Maine. 

Other states may see medical and recreational marijuana issues on the ballot this fall, including Arkansas, Florida, Michigan, Montana, Nebraska, North Dakota and Oklahoma.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should medical marijuana be subject to excise taxes? 

With a free trial to Premier State Tax Library, practitioners have a single trusted resource that provides all of the tools and information they need to develop and implement the right tax strategies.