The government of Massachusetts has revealed that it is generating more tax revenues from its marijuana industry than its alcohol sector. The state disclosed that it made $74 million in the 2020–2021 fiscal year, whereas the alcohol industry brought in less than $55 million for the entire year. Note that these revenues do not include the sales tax; they are generated from excise taxes on the products.
Cannabis Sales In Massachusetts
Massachusetts has active medical and recreational cannabis legislation that permits adults age 21 and above to consume and possess a specified amount of cannabis without fear of penalties. Since the launch of the adult-use marijuana sector in November 2018, the operator has realized $2.5 billion in sales. The $2 billion milestones was achieved in September 2021.
The news about Massachusetts generating higher revenues from cannabis than alcohol is a good point that cannabis supporters could cite that cannabis has fewer harmful effects than liquor. When WCVB-TV reported this news last week, it emphasized that many Americans drink a lot of alcohol. The generated tax revenues will go a long way towards alleviating the conditions of residents living in disadvantaged areas.
The current tax rates peg the state sales tax at 6.25%, local tax at 3%, and excise tax at 10.75%. In addition to the $74 million generated from excise tax, the cannabis industry had over $200 million in other tax revenues during the same period. This high value is primarily due to the influx of new cannabis users during the pandemic in 2020. A senior Wall Street research analyst, Vivien Azer, says that consumption trends are just starting to normalize. Azer noted that the changing attitudes about cannabis plants drive the new growth in the industry.
Recreational states are raking in big bucks from cannabis.
The general legal cannabis market in the United States has been faring very well. States adopting recreational legislation are experiencing increased economic growth and an influx of employment opportunities. This expansion can be attributed to cannabis dispensaries, as the more retail stores operate in a state, the higher the record-breaking amount of taxes generated. Despite the competition from illegal operators within legal states, the cannabis stock has grown comfortably.
The current record of some states may seem minuscule when federal reforms are finally approved. There is so much room for the cannabis industry to expand. Market analysts predict that the current trends are merely a glimpse of what could be achieved by just a tiny region in the country. As more states continue to join the recreational industry, the sector's overall value will continue to increase.
Most of the states with a working adult-use industry have a combined revenue amount of at least $10 billion (according to the Marijuana Policy Project, MPP).
Catching Up To The Other Industries
The cannabis industry, with its many regulations, has caught up and surpassed some other industries. The latest is the liquor sector.
States such as Colorado and California, whose adult-use industry was established over five years ago, have made billions in taxes from the legal cannabis industry. What's laudable is that these states' regulators are committed to properly investing all the generated tax dollars.
The first time a state generated the most excise taxes from its cannabis industry was in 2021. Illinois generated almost $100 million more from recreational cannabis than liquor last year. Regarding how the funds are being spent, last year, Illinois regulators allocated over $3.5 million to mental health services and other valuable programs that would uplift residents of disadvantaged communities. A portion of the tax revenues are also used to fund efforts to decrease street violence through local intervention organizations.
In June 2021, California regulators revealed that $28 million in grants had been funded by marijuana tax revenues. These grants were awarded to 59 nonprofit groups in the state to be used to reverse some of the negative impacts of the war on drugs on local communities. During the 2020–2021 fiscal year, California made $817 million from the recreational cannabis tax. State officials stated that this was 54% more than the amount generated in the 2019-2020 fiscal year.
On the other hand, Colorado has generated over $1 billion in cannabis tax revenue since it began operating. At least half of this generated amount has been used to support the state's public school sector. Last year, the state collected about $420 million in cannabis tax dollars.
Is Recreational Cannabis Overtaxed?
This recent data shows that Massachusetts is making substantive cannabis sales, but it does not mean it is making as many sales as the alcohol sector.
In Massachusetts, cannabis operators must submit excise taxes of 10.75% on cannabis products. Where alcohol entrepreneurs pay between a few pennies for soft liquor cider to a few bucks for each gallon of hard liquor,
Drinking is a more common vice for Americans than cannabis consumption. However, cannabis money is far more valuable than alcohol money. Currently, dozens of schools, roads, and even law enforcement agencies are being run with taxes generated from the weed industry. This doesn't excuse the fact that cannabis is taxed too much. Many industry players have complained about the excess tax rates leveled on the industry. They claim the industry's exposure to taxes is detrimental to its growth.
For instance, California made $400 million in liquor tax revenues last fiscal year. In contrast, it generated over $1 billion from its cannabis tax revenues within the same duration. The punchline is that total cannabis sales are in no way comparable to alcohol sales. However, the cannabis industry is being milked dry.
Bottom Line
The cannabis industry is considered a source of accessible funds for the government. Even though the sector is overdelivering on revenues, its growth is grossly limited due to its competition with the untaxed illicit market.
Efficient policies or tax rates are needed in every legal cannabis industry. It would be wrong for the government to continue to rely on cannabis tax dollars. It is still too early to state whether people are shifting from alcohol to the cannabis industry or whether it just seems so because legal cannabis is too expensive and lathered in taxes.
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