Extras on Excise: Update on Recreational Marijuana Taxation: Part II (Alaska, Colorado, Maine, and Massachusetts)


Marijuana Leaves

This blog post is the second and final portion of a short primer on the status of state recreational marijuana taxation in the United States. Part I of this series, covering California, Nevada, Oregon, and Washington can be found here.

Alaska

Voters in Alaska approved Ballot Measure No. 2 in November 2014, legalizing the possession of marijuana effective Feb. 24, 2015, and permitting retail sales of marijuana after the state set up a regulatory framework for the industry.

Alaska generates revenue by charging license fees pursuant to Alaska Admin. Code tit. 3, § 306.100, with cultivators, retail stores, and most marijuana manufacturers paying $5,000 annually.

The state further generates revenue through Alaska Stat. § 43.61.010, which imposes a general excise tax of $50 per ounce on marijuana sold by cultivators to retail stores or manufacturers, and Alaska Admin. Code tit. 15, § 61.100, which specifies that portions of the plant other than the bud or flower are taxed at a rate of $15 per ounce.

Tax collections began after the state’s first retail store opened on Oct. 29, 2016, and tax revenue has increased from $10,400 in the first month to over $220,000 in March 2017.

Colorado

Colorado voters passed Amendment 64 in November 2012. Just over a year later—on Jan. 1, 2014—the state became the first in the nation permitting legal marijuana sales.

Colorado’s licensing fees currently range from $2,000 for a testing facility to $4,500 for a retail store, with most renewal fees costing about $1,800 per year.

Most of the state’s revenue from marijuana comes from taxation, however, as cultivators must pay a 15 percent excise tax on sales of marijuana made to manufacturers, retail stores, or other manufacturers. The tax is based on the average market rate of flowers, plant trimmings, seeds, and other forms of cannabis, rather than the actual price of the transaction. The market rate is determined by the state Department of Revenue and is adjusted on Jan. 1 and July 1 each year.

Colorado also imposes a 10 percent special sales tax on recreational marijuana sales, which is charged in addition to state and local sales taxes.

Total marijuana sales in Colorado (including medical marijuana) totaled $1.3 billion in 2016, generating approximately $200 million in tax revenue for the state, per MarketWatch’s analysis of Colorado Department of Revenue data.

Maine

Maine voters legalized recreational marijuana on Nov. 8, 2016, narrowly passing Question 1 by just under 4,000 votes. Pursuant to Question 1, possession and use of recreational marijuana became legal on Jan. 30, 2017.

However, on Jan. 27, 2017, the Maine legislature passed 2017 H.P. 88, which delayed the implementation of retail licensing and sales until Feb. 1, 2018, at the earliest.

Nonetheless, since Maine has had legalized medical marijuana since 1999, licensed medical marijuana dispensaries are hoping Maine follow states like Colorado and Oregon, which allowed dispensaries to sell recreational marijuana while legislators and regulators finalized licensing schemes for recreational marijuana retailers. Two bills are currently in the legislature furthering these goals, 2017 H.P. 1448 and 2017 H.P. 1491, both of which have been referred to the Committees on Marijuana Legalization Implementation.

While only time will tell which entities will be the first to sell recreational marijuana in Maine, most of the finances are—at least for the moment—set in place.

Maine Rev. Stat. tit. 7, § 2448(10) establishes licensing fees for recreational marijuana retailers ranging from $250 to $2,500 with a nonrefundable application fee ranging from $10 to $250. The statute also sets licensing fees for cultivators somewhere between $10 to $100 per unit block (100 square feet) with a nonrefundable application fee ranging from $10 to $250, and licensing fees for manufacturers in the range of $100 to $1,000 with a nonrefundable application fee ranging from $10 to $250.

Maine Rev. Stat. tit. 36, § 1817(2) imposes a 10 percent tax on sales of retail marijuana at the final point of sale. Estimates for sales and tax revenue are very much up in the air, with the Portland Press Herald reporting disagreements between Gov. Paul LePage (R) and various marijuana advocates on how much marijuana the Pine Tree State may sell by 2020.

Massachusetts

Voters in Massachusetts also passed Question 4 on Nov. 8, 2016, which legalized possession, use, and cultivation of marijuana beginning Dec. 15, 2016.

However, even though Question 4 set Jan. 1, 2018, as the first date for issuing marijuana retailer licenses, in December 2016 lawmakers pushed back the date for retail sales to July 2018.

While Massachusetts has not yet finalized its licensing fees, Question 4 establishes maximum fees of $3,000 for an initial application, $10,000 for a testing facility license, and $15,000 for a retailer, manufacturer, or cultivator license.

Question 4 also imposes a 3.75 percent tax on retail sales of recreational marijuana with an option for localities to impose up to a 2 percent tax; however rates are still being debated by legislators, per The Boston Globe. These taxes will be imposed in addition to the state sales tax.

With the current rates in place, the Globe also reports that the state Department of Revenue estimates recreational marijuana sales could bring Massachusetts $65 million in the state’s first year of sales and $130 million the following year.

As made abundantly clear by this primer, the world of recreational marijuana is an ever-changing landscape. Major decisions impacting the industry—which some estimate will reach $50 billion by 2026—are made on an almost daily basis. For the most up to date information, continue to follow Bloomberg BNA.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What state do you think has the best recreational marijuana licensing and taxing regime?

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.