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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Designer, Dan Carvajal
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A Road Map to Recreational
• Legal recreational marijuana sales are ongoing in nine states, covering 27
percent of the U.S. population. In 2018, 10.5 percent of adult Americans had
used marijuana products in the last 30 days.
• States have designed different excise tax systems for recreational marijuana.
While most tax based on price, states also tax marijuana based on weight or
• An excise tax on recreational marijuana should target the externality and raise
sufficient revenue to fund marijuana-related spending while simultaneously
outcompeting illicit operators. Excise taxes should not be implemented in an
effort to raise general fund revenue.
• Changes to federal law would have implications for the tax revenue in states
with legalized marijuana. If businesses had better access to banking, federal
tax deductions, or interstate trading, prices would most likely fall.
• High taxes may limit adoption by minors and non-users but could hurt the
competitiveness of the legal market. Low taxes may allow easy conversion
from the illicit market but could increase consumption among non-users and
minors. Taxing by price may not be stable, taxing by weight could encourage
use of high potency products, and taxing by potency could complicate tax
collection and add significant costs to both tax collectors and industry.
• A potency- and weight-based tax defined by THC levels may be the best
short-term solution for lawmakers assuming that THC is an appropriate proxy
for the externalities associat