Changes from 2025
Maine rebalanced the taxes on recreational marijuana. The wholesale taxes per unit of product were reduced across product types, including from $335 per pound of flower to $223 per pound of flower, while the percentage tax on retail sales was raised from 10 to 14 percent.
Maryland increased the tax on retail sales of recreational marijuana from 9 to 12 percent.
Michigan established a new 24 percent wholesale tax on recreational marijuana in addition to the 10 percent retail tax that is still levied.
Minnesota raised the tax on retail gross receipts of recreational marijuana from 10 to 15 percent.
New Mexico raised the tax on retail sales of recreational marijuana from 12 to 13 percent, and has similar increases scheduled annually until 2030.
Nearly half of US states regulate and tax recreational markets, and only 10 states still lack a comprehensive medical marijuana program. A few states have decriminalized possession but have not allowed for the cultivation or sale of marijuana, sometimes due to gubernatorial vetoes or court rulings blocking legalization.
Many states that have not yet legalized marijuana seem to be moving toward legalization, but challenges clearly remain. This year is set to be another eventful year for drug policy ballot initiatives, which may shift the marijuana tax landscape further. Legislative efforts are ongoing in many states, such as Virginia, New Hampshire, and Pennsylvania. Efforts seem to be underway for federal rescheduling of marijuana, which has some tax implications, but would not change the federal prohibition of recreational marijuana. More comprehensive federal reforms like the STATES 2.0 Act would be required to actually legalize marijuana.
Under the existing federal prohibition, businesses that operate in states that have nullified the federal policy to establish quasi-legal markets remain burdened by the inability to participate in interstate commerce. These businesses also have difficulty doing business with banking institutions and face struggles associated with the unique legal framework.
Many states have been facing budget shortfalls and/or a struggling legal marijuana industry, which has prompted several changes to marijuana tax policy. The tax in California increased briefly from 15 to 19 percent before that increase was reverted and delayed to give some relief to the industry. The new Michigan wholesale tax on adult-use marijuana was prompted by transportation revenue needs, with revenues from the new tax dedicated to the neighborhood road fund. Minnesota budget woes spurred the marijuana tax increase from 10 to 15 percent before legal sales even began.
Excise taxes on recreational marijuana are ill-suited for filling gaps in general revenue or shortfalls in unrelated spending programs. Squeezing the legal marijuana industry for revenue unnecessarily burdens a growing industry and encourages consumers to stick to established illicit markets. States should not go through all the trouble of nullifying federal marijuana prohibition, administering licensure and regulations, and fostering a legal market only to overburden that market with taxes that render it unable to compete with illicit purveyors.
A significant majority of marijuana consumption already occurs via illicit markets, even as more states legalize sales. States that impose excessive taxes, require expensive or limited licensure, or otherwise hinder their legal markets may not experience significant reductions in illicit consumption. If prices in legal markets are kept higher than illicit market prices, consumers will not be incentivized to switch to safer legal products. Properly designed taxes have the potential to generate billions of dollars in revenue for the states, though it may take some time for these revenues to be realized as legal markets develop.
With interstate commerce prohibited, the disparate tax designs across states do not yet create some of the problems that occur in other legal markets. There are no multistate businesses that must comply with varied regulations, and tax arbitrage or double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. cannot legally occur. However, if interstate commerce is eventually tolerated by the federal government, the significant differences in tax designs may create negative effects and opportunities for tax avoidance. States should prepare to harmonize their tax designs once interstate marijuana business is allowed—and would be better advised to coalesce around best practices now, before systems become more difficult to reform.
