Like HowStuffWorks on Facebook!

Would legalization make marijuana cheaper?


Taxation of legalized marijuana

Generating revenue for the state may not factor into the average American's desire to bring home an ounce of marijuana, but that revenue is a driving force behind looser state laws regarding the sale and possession of the drug. The Colorado Center on Law & Policy found that legalizing marijuana and regulating it like alcohol could generate a combined savings and revenue of as much as $60 million per year for the state [source: Stiffler].

With numbers like that, it's no surprise state legalization laws to date have borrowed from those that exist for other intoxicants, including alcohol, and that means you should expect an excise tax on commercial sales of marijuana. For states, legalization is not for fun, but for profit. Local and state sales taxes would also be added to retail sales, depending on the state and its tax laws.

The National Organization for the Reform of Marijuana Laws, or NORML, a nonprofit group dedicated to marijuana education and legalization, has done some estimating and recommends a realistic excise tax of between $25 and $50 per ounce, making it consistent with the taxation on other popular legal intoxicants (cigarettes, in comparison, are taxed about $50 per ounce) [source: Gieringer, Tobacco Control Legal Consortium]. But taxes will vary from state to state. Washington's legalization laws, for example, tax marijuana at 25 percent, and that tax is applied not just at the point of sale to the consumer, but in three different instances: An ounce of marijuana is taxed when legally bought from a special retailer (remember this is just counting excise tax -- sales tax will also be applied, which in Washington state is 6.5 percent, as well as local tax), but that excise tax will also be applied when the grower sells it to the processor and again when the processor sells it to the retailer [source: Smith]. Colorado, too, taxes the sale of marijuana but not as severely as Washington. A 15 percent excise tax is applied to marijuana sales, plus state and local sales taxes [source: Novey].

The price of an ounce of marijuana, however, might not get any cheaper than black market prices until it's a fully legalized product, not just in the eyes of individual states or for medicinal use, but at the federal level too. While state legalization could make cannabis cultivation easier, growers could still face federal penalties, which means large, agricultural farming and industrial operations designed to produce a cheaper domestically-grown product, for example, likely won't happen until full legalization opens the door. Federal rules trump state, and marijuana is considered a Schedule I controlled substance by the Drug Enforcement Administration (DEA).


More to Explore