Full access to Entrepreneur for $5
Subscribe

How Taxes And Regulations Impact Cannabis Sales

Do they drive success or hinder it?

By
This story originally appeared on Benzinga

Growth is inevitable in legal cannabis markets, as a worldwide $200-billion legacy market moves regulated channels. But results will vary as regulators in each new market experiment to find the right formula for free and legal – but taxed and licensed – markets.

RELATED: How Are States Allocating Cannabis Tax Revenue? Well, It's Kind Of Complicated

Different states, different tax rates

The first US states to allow sales to all adults have decisively shown that liberal licensing of storefronts and lower tax rates both help to increase sales in adult-use cannabis markets, and hence shrink the legacy market. Of the states that fully legalized cannabis in the early-to-mid-2010s, Colorado and Oregon have the most liberal regulations in these regards. In Colorado, the tax rate for cannabis is 15% and there is roughly one dispensary per 13,500 citizens while Oregon has one dispensary for every 5,600 citizens and a tax rate of 20%.

Both states have achieved very high sales, according to estimates from The Brightfield Group. In 2020, per capita sales in Colorado reached $303 while they hit $230 in Oregon. For comparison, California, which did legalize adult-use slightly later than these states in 2018 but also started with an extremely robust medical program, had just $104 in per-capita legal sales in 2020.

Much of this can be attributed to the lack of dispensaries – just one for every 54,600 citizens. California’s effective tax rate ranges from 23-38% and thus drives many consumers toward the legacy market for both easier access and lower prices.

RELATED: California Is Closing in on $2 Billion in Cannabis Tax Revenue

Help or hinder?

The industry experience in Washington—which also went adult-use legal in the middle of the 2010s—illustrates that more liberal licensing of store locations may be the more important factor, but only to a point. With one dispensary per 13,149 residents, Washingtonians spent $184 per capital according to Brightfield, well above California spending levels. But the state has a 37% effective tax rate, which has kept per capita spending well below those seen in Colorado and Oregon.

Four-State Comparison

 

 

 

Stores/Capita

Effective Tax Rate

Spending/Capita

Colorado

           13,553 

15%

303

Washington

           13,149 

37%

184

Oregon

             5,620 

20%

262

California

           54,611 

23-38%

104

The tax and regulatory issues driving success (or hindering it) in markets in the US, Canada and around the world are comprehensively outlined in “FTI Consulting/Global Go Annual Report on Cannabis Law & Markets”, a 400-plus page report just published by Global Go Analytics.