Cannabis Cash: How Much Money Could Your State Make From Marijuana Legalization?

Studies
How Much Money Could Your State Make From Marijuana Legalization?

Colorado, the first state to allow the sale of recreational marijuana, is expected to take in $60 million to $70 million this year in taxes from legal pot sales, according to the Denver Business Journal. Across the U.S., states could gain just over $3 billion in tax revenue from legal marijuana sales, according to a new analysis by NerdWallet. What’s your state’s piece of the pie?

Trends and takeaways

The U.S. stands to gain, according to our calculations, $3,098,866,907 in state and local taxes per year — that’s more than twice the entire budget of the Small Business Administration in 2013.

California could gain the most from taxes on sales of marijuana. The state stands to take in $519,287,052, which almost covers the 2013 budget for the California Department of Parks and Recreation.

Pot

How we sized the marijuana market

Marijuana use is illegal in most states, so it’s difficult to get concrete numbers on the amount of marijuana purchased and consumed. To estimate this value, we used data from the Substance Abuse and Mental Health Services Administration detailing the percentage of marijuana smokers ages 25 and over in each state and multiplied that percentage by the state’s population older than 25 to get the number of users in each state. We then took the state’s users as a percentage of total users over 25 in the U.S. and multiplied that by the total marijuana market estimate (sized at $14 billion by Harvard University economist Jeffrey Miron) to determine the market size in each state.

We used state and local tax rates compiled by the nonpartisan Tax Foundation to estimate the amount each state would earn in sales tax revenue. We added in a 15% excise tax (a tax levied on a specific good, such as cigarettes or gas), which is the excise tax in Colorado for marijuana purchases.  For the full formula, see the bottom of this article.

How much has Colorado made since legalizing marijuana? In the first six months of this year, the state collected $25,307,067 in taxes on the sales of marijuana. By June 2015, Colorado expects to collect up to $70 million—not very far off from our estimate of $78,157,904. Take a look at the chart to see how much each state could collect per year in sales taxes if the recreational and medical use of marijuana was made legal.

Interested in future NerdWallet studies? Click here to have updates sent directly to your inbox.

How much money each state could make

Scroll right to see all categories.

StatePopulation age 25 and olderPopulation over 25 who has smoked marijuana in the past monthNumber of marijuana smokersState's percentage of U.S. marijuana marketMarijuana market sizeCombined sales tax rate (state and local)Excise tax rateRevenue from sales and excise tax
Alabama3,209,6463.38%108,4861.03%$144,086,2388.51%15%$33,874,675
Alaska464,59411.18%51,9420.49%$68,986,4931.69%15%$11,513,846
Arizona4,280,4645.33%228,1492.16%$303,016,8138.17%15%$70,208,995
Arkansas1,949,3823.61%70,3730.67%$93,465,8209.19%15%$22,609,382
California24,779,7846.74%1,670,15715.84%$2,218,227,4778.41%15%$519,287,052
Colorado3,444,6547.63%262,8272.49%$349,075,0527.39%15%$78,157,904
Connecticut2,457,9786.01%147,7241.40%$196,200,9616.35%15%$41,888,905
Delaware618,6124.95%30,6210.29%$40,669,8160.00%15%$6,100,472
District of Columbia439,5317.24%31,8220.30%$42,264,5985.75%15%$8,769,904
Florida13,503,7474.73%638,7276.06%$848,328,5856.62%15%$183,408,640
Georgia6,403,8383.88%248,4692.36%$330,005,1606.97%15%$72,502,134
Hawaii952,2815.69%54,1850.51%$71,965,7834.35%15%$13,925,379
Idaho1,012,7863.77%38,1820.36%$50,711,6466.03%15%$10,664,659
Illinois8,558,8954.79%409,9713.89%$544,505,0098.16%15%$126,107,360
Indiana4,278,9454.31%184,4231.75%$244,941,6527.00%15%$53,887,163
Iowa2,036,9934.13%84,1280.80%$111,734,7496.78%15%$24,335,828
Kansas1,863,2242.55%47,5120.45%$63,103,5688.15%15%$14,608,476
Kentucky2,935,4613.65%107,1441.02%$142,304,2426.00%15%$29,883,891
Louisiana3,006,6053.02%90,7990.86%$120,595,7458.89%15%$28,810,324
Maine947,0176.29%59,5670.57%$79,114,6825.50%15%$16,218,510
Maryland3,972,1353.66%145,3801.38%$193,087,3196.00%15%$40,548,337
Massachusetts4,556,6096.34%288,8892.74%$383,689,3016.25%15%$81,533,976
Michigan6,621,0186.61%437,6494.15%$581,265,9676.00%15%$122,065,853
Minnesota3,600,7444.33%155,9121.48%$207,075,5437.19%15%$45,950,063
Mississippi1,911,9683.88%74,1840.70%$98,528,3057.00%15%$21,676,227
Missouri4,023,6413.83%154,1051.46%$204,675,8807.58%15%$46,215,814
Montana686,7707.94%54,5300.52%$72,423,6630.00%15%$10,863,549
Nebraska1,206,9083.74%45,1380.43%$59,950,7246.79%15%$13,063,263
Nevada1,840,6426.44%118,5371.12%$157,435,9337.93%15%$36,100,059
New Hampshire919,8835.41%49,7660.47%$66,096,5100.00%15%$9,914,476
New Jersey6,049,3523.96%239,5542.27%$318,165,2256.97%15%$69,900,900
New Mexico1,360,3306.94%94,4070.90%$125,386,9727.26%15%$27,911,140
New York13,309,7615.98%795,9247.55%$1,057,109,8248.47%15%$248,103,676
North Carolina6,489,8834.24%275,1712.61%$365,469,7136.90%15%$80,037,867
North Dakota457,9043.07%14,0580.13%$18,670,7386.55%15%$4,023,544
Ohio7,770,7165.39%418,8423.97%$556,286,4357.11%15%$122,994,931
Oklahoma2,487,4564.55%113,1791.07%$150,319,5528.72%15%$35,655,798
Oregon2,671,77210.25%273,8572.60%$363,723,9740.00%15%$54,558,596
Pennsylvania8,756,3174.20%367,7653.49%$488,449,2356.34%15%$104,235,067
Rhode Island712,2719.74%69,3750.66%$92,140,9937.00%15%$20,271,018
South Carolina3,151,6165.15%162,3081.54%$215,570,4337.19%15%$47,835,079
South Dakota544,2924.28%23,2960.22%$30,940,2915.83%15%$6,444,863
Tennessee4,336,4733.81%165,2201.57%$219,437,2199.45%15%$53,652,400
Texas16,390,3793.30%540,8835.13%$718,375,6518.15%15%$166,303,963
Utah1,641,3353.04%49,8970.47%$66,270,3836.68%15%$14,367,419
Vermont434,9489.34%40,6240.39%$53,955,1476.14%15%$11,406,118
Virginia5,504,7663.44%189,3641.80%$251,504,6235.63%15%$51,885,404
Washington4,645,8598.11%376,7793.57%$500,421,0248.88%15%$119,500,540
West Virginia1,296,2013.29%42,6450.40%$56,639,1756.07%15%$11,933,874
Wisconsin3,854,1704.65%179,2191.70%$238,030,4335.43%15%$48,629,618
Wyoming380,9424.36%16,6090.16%$22,059,4165.49%15%$4,519,974
Total U.S.208,731,4985.05%10,540,941N/A$14,000,000,000N/AN/A$3,098,866,907

Methodology

The formula used to calculate the state revenue is as follows:

State market size = % smokers in state* state population/total users in U.S. * $14 billion

Tax rate = state and local taxes + excise tax of 15%

Revenue from sales and excise tax = state market size * tax rate.

NerdWallet’s estimates are conservative. This analysis doesn’t account for several factors, including:

Variations in excise taxes: Each state will determine its own taxes, but for our calculations, we assumed the same 15% excise tax that Colorado collects across all states.

Reduced spending on law enforcement: We didn’t include the money states would save by not having to enforce laws against the use of marijuana. Miron, the Harvard economist, estimates a savings of $7.7 billion annually nationwide on law enforcement.

Medical marijuana sales: We didn’t deduct the amount of revenue raised in states that have legalized medical marijuana.  The total revenue we calculated for California, for example, includes revenue they already make from medical marijuana sales.

Potential market changes: If marijuana becomes legal for wider recreational use, consumption could increase, which would make our current market estimates low.

Read more about where you live on our Cities page.


Infographic by Brian Yee. Cannabis plant image via Shutterstock.

  • Did you find this article helpful?
  • yes   no