Which helps society more? Alcohol or cannabis.
That sounds like a funny question, but it may be an important one with more local governments embracing the opportunity to bring in tax revenue from cannabis sales.
A new report from Wikileaf, an online resource for medical and recreational marijuana patients and consumers, titled Data for Alcohol vs. Cannabis: Which Taxes Help Society More?, examines alcohol and cannabis taxation in five states: Alaska; California; Colorado; Oregon; and Washington.
The report reviews three aspects of each state’s tax scheme and provides an overview of actual revenue received from cannabis and alcohol taxes. It also summarizes cannabis and alcohol tax distributions.
The report gives cannabis the nod as the more helpful to society. After analyzing the data, the report lands on the conclusion that in these five states, cannabis taxes provide slightly more support to social programs than taxes from alcohol.
“A lot more forethought seems to have gone into how tax revenue from cannabis is going to be allocated to benefit society than alcohol,” said Dan Nelson, CEO and founder of Wikileaf. “In the five states analyzed, cannabis tax policies were more often earmarked for social service spending than alcohol.”
States typically get revenues from sales tax on alcohol and cannabis, but the taxation methods vary broadly in each state.
Alaska, for example, does not impose a sales tax on either deleterious substance. But the state does have an excise tax on both. The report finds that in Alaska, the alcohol tax was $20.1 million in 2017, and in 2018 that rose to $19.6 million. Taxes from cannabis were $900,000 in 2017, and they rose to $5.3 million in 2018.
California heavily taxes alcohol and cannabis, applying both a sales tax as well as excise taxes. California not only applies a general sales tax of 7.25% to all purchases, the state also allows municipalities to apply their own sales tax rates.
The state’s tax haul from alcohol sales was $376 million in 2018, and is projected to be $382 million in 2019. Tax revenues from cannabis were $345 million in 2018, and are projected to be $288 million in 2019.
While those figures may be impressive, they are nowhere near early cannabis tax revenue projections made prior to legalization of adult-use in 2018. Early on in the process, the state Legislature estimated that recreational cannabis would bring in around $1 billion in tax revenue in its first year.
One reason for this is an unexpected downturn in California’s cannabis market in 2018, although rapid growth has resumed. Another drag could be lack of availability. An estimated three-quarters of local jurisdictions in California have banned commercial sales.
A recent report shows that heavy taxes and regulatory burdens have buoyed California’s illicit market.
The legal market represents just over 54% of the overall cannabis spending in the state, while states with “more supportive” regulatory environments like Colorado, Oregon and Washington, are on track to shrink the illicit sales percentage to 30% or less of spending by 2024, according to a report out earlier this month from BDS Analytics.
Wikileaf has similar findings in its report.
“Besides the difference in social tax allocation between cannabis and alcohol, we found California’s revenue woes and thriving illicit market to be both fascinating and unsettling,” Nelson said.
He said the findings should be seen as a reminder “that over-taxing the plant can hinder the societal contributions as it could push consumers to the illicit market.”
The report breaks down how the tax dollars are being allocated in California for this year and next: $12 million for cannabis surveillance and education; $80.5 million for child care subsidies; $21.5 million for youth programming (drug abuse education and prevention); $5.3 million for youth programming (natural and cultural resource access); $23.9 million for watershed cleanup and restoration; $15.9 million for environmental impact of cannabis cultivation surveys.
Colorado, which has both a sales tax and an excise tax, allocates 85% of the excise revenue to the Old Age Pension Fund, which funds a program offering financial assistance and medical benefits to low income adults of age 60 years and up. The excess revenue goes to the general fund.
Alcohol sales, use and excise taxes were $46 million in 2017 for Colorado, and $47 million in 2018. Medical marijuana sales tax was $12 million in 2017, and $16 million in 2018. Retail marijuana excise was $71 million in 2017 and $68 million in 2018. Retail marijuana sales tax was $28 million in 2017 and $168 million in 2018.
Washington applies a few different taxes on alcohol depending on type. The state also applies a 37% excise tax to cannabis in addition to a general state sales tax.
All marijuana-related funds are routed into a “marijuana account,” where the money is distributed according to statute.
Washington first appropriates money to state agencies, schools and research. Half of the remaining revenue is given to Washington’s basic health plan trust account, 15% of the remaining revenue is dedicated to programs that study, prevent, and educate the public about substance abuse among youth, and another 10% funds go to broader education and campaigns about marijuana among the general public.
Oregon does not have a general sales tax because its liquor stores are state-controlled. Oregon applies one state excise tax on wine at 67 cents per gallon and another on beer at 8 cents per gallon.
Oregon imposes a 17% sales tax on the retail price of cannabis products.
That revenue is deposited into the Marijuana Account, which supports administration and enforcement costs. A remaining 80% of that account revenue is deposited into state school funding, mental health services, state police, and drug abuse prevention. The remaining revenue is redistributed to cities and counties to enforce the law in their jurisdictions.
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