By October, cannabis sales in Colorado had already topped $1 billion. By year end, it is predicted that the Centennial State will have produced more than $1.2 billion in sales. With taxes for recreational use of 25 percent in some jurisdictions, the record sales has brought a windfall to cities allowing the sale of marijuana.
Colorado Department of Revenue data indicated 2016 was on a record setting trajectory as early as the first seven months of the year when July posted revenues 27 percent greater than in 2015. July set a new high water mark for cannabis sales in the state surpassing April 2016 previous record of $117 million by at least five million. In comparison, the state of Washington also set sales records in 2016. Their biggest sales month was June 2016 with nearly $87 million – still 40 percent less than Colorado’s high water month. While Colorado reported well over $1 billion in revenue in one year, the Washington Times in July reported $1 billion in revenue for the state of Washington since legalizing sales – approximately two years.
What makes Colorado’s huge sales numbers even more impressive is the declining price of wholesale marijuana, making the product cheaper for the end consumer. As a result, the amount of cannabis sold is growing by an even greater percentage than gross sales. According to Tradiv, an online cannabis forum and exchange, a pound of marijuana that sold for an average of $2,500 in Colorado in 2015 sold for an estimated $1,500 in 2016.
It might seem that given the record sales, other states would be looking to Colorado to mimic their marijuana sales strategy. A closer look at the state’s tax structure, however, reveals some long term issues. Colorado’s tax rate is based on a percentage of the value of the product sold. With increased efficiencies and use of technology, as well as economies of scale through investment by larger firms, plunging prices mean lower tax collection. Colorado has implemented a system that will decline in the long term even in an environment with record sales. As a result, states new to legalization are considering other tax collection methodologies.
With only three full months of cannabis sales in Alaska, the state has begun collecting tax based on weight. In November 2016, cultivators paid just over $80,000 in taxes. Cannabis in Alaska is taxed at $50 per ounce for the plant bud while stems and leaves are taxed at $15 an ounce. Through this system, the more cannabis consumed in Alaska, the more taxes the state will collect. In other words, as the industry expands, so will resources to serve the industry. That is not necessarily the case in Colorado. Alaska will use half their revenue for programs addressing criminal offenders and the other half goes to the state’s general fund.
Despite record sales and taxes in Colorado, Governor John Hickenlooper has asked lawmakers for a 50 percent increase in recreational cannabis tax to fund schools. In this year’s State of the State, he announced a $6 million fund increase to fight criminal elements in the industry and several million more to provide homeless services. For 2015, the Colorado Department of Revenue reported that most marijuana tax went to benefit schools, “the first $40M of the Retail Marijuana Excise Tax revenue was distributed to the Colorado Department of Education’s Building Excellent Schools Today (BEST) program. Excise tax collections in excess of $40M, $2.5M for FY 2015-16, were transferred to the Public School Fund.”
In Colorado 65 percent of all sales are typically recreational while medical marijuana sales account for 35 percent. The bud of the plant comprise over half of all sales while concentrates account for one quarter of sales and edibles are another 15 percent.