How Do Cannabis Taxes Differ Between States?

Taxes are one of the two things that are supposedly inevitable. As many cannabis advocates found out during the push for legalization, taxes truly are hard to avoid. In fact, in many states, the potential revenue from taxing cannabis was one of the biggest factors in convincing legislators to make the plant legal recreationally. 

Since cannabis is becoming available legally on a state-by-state basis, it should come as no surprise that the taxes are collected differently in every area. Here’s what you need to know about how cannabis is taxed in different states.

Which States Tax Cannabis?

Of the states where cannabis is currently legal for recreational use, only three areas have chosen not to tax it. Maine, Vermont, and the District of Columbia don’t have specific excise taxes on it, but they do hold it to other normal taxes when applicable.

Every other state so far has decided to put an additional excise task on the plant. However, these states use different taxation models and rates, so the amount that people and cannabis businesses will pay varies depending on where they live.

Types of State Cannabis Taxes

There are three basic methods for how cannabis is taxed in different states: percentage of price, weight-based, and potency-based. Understanding which model your state uses can help you make the best financial decisions possible when choosing your cannabis lending provider. 

Percentage of Price

The most common type of cannabis tax is a percentage-of-price tax, or excise tax. Retailers pay the government a certain percentage of the total amount they earn from the sale of cannabis products. Here’s a list of the states with percentage-of-price taxes and their respective tax rates:

  • Arizona: 16% excise tax
  • Colorado: 15% excise tax
  • Massachusetts: 10.75% statewide excise tax plus up to 3% local excise taxes
  • Michigan: 10% excise tax
  • Montana: 20% excise tax
  • Nevada: 10% excise tax for retailers, plus 15% excise tax paid by cultivators
  • Oregon: 17% excise tax
  • Washington: 37% excise tax

Weight-Based

Weight-based taxes don’t take the price of cannabis into account. Instead, they charge a flat tax rate based on the total weight of cannabis that a store has sold. Alaska and New Jersey have chosen weight-based taxes. 

In Alaska, the tax is a flat $50 per ounce of cannabis buds and flowers, and $15 an ounce for the rest of the plant. In New Jersey, the taxes depend on the average retail price per ounce. When retail prices are above $350 per ounce, taxes are just $10 for that amount. If retail prices fall below $200 per ounce, taxes are up to $60 per ounce. 

California also has weight-based taxes, but only for cultivators. These include a $9.65 tax per ounce of flower, $2.87 per ounce of leaves, and $1.35 per ounce of the rest of the plant.  

Potency-Based

Illinois has potency-based cannabis taxation. Simply selling cannabis in the state leads to a 7% excise tax for all sales by cultivators. Meanwhile, retailers see a 10% excise tax on low-potency cannabis products, a 25% tax on high-potency products, and a 20% tax on cannabis-infused products. 

Don’t Worry About Tax Season Cash Flow

These high tax rates can be a burden on cannabis businesses, but they don’t have to be. With a line of credit from Bespoke Financial, you can make sure you always have access to cash to pay your bills at tax time. Don’t worry about high rates — focus on making your business the best it can be with Bespoke.

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