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What state has the highest marijuana tax and which state has the most revenue taxing cannabis?

Twenty-one states have legalized marijuana at the recreational level, and all have developed unique tax systems to increase public revenue. Let’s dive in.

FILE PHOTO: A worker collects cuttings from a marijuana plant at the Canopy Growth Corporation facility in Smiths Falls, Ontario, Canada, January 4, 2018. Picture taken January 4, 2018.   REUTERS/Chris Wattie/File Photo

In recent years, almost half of the states in the US have legalized the sale of recreational marijuana. This has led to the need for governments to establish tax systems for the drug. When developing a tax system, governments walk a fine line between a desire to increase public revenue and not seeing duties so high that demand in the black market remains high. States have taken different approaches to imposing taxes on marijuana, with the systems varying based on whether they tax a percentage of the sale price, the weight, the potency, or the standard sales tax. All states combined all of these methods to increase the revenue generated from the commercialization of marijuana.

According to the Urban Institute, in California, those who purchase products containing marijuana pay a fifteen percent tax. Local governments can also impose their own taxes, “which means the tax burden on the customer is possibly well above the listed tax rate.

Which states have the highest taxes?

The five states with the highest taxes on marijuana are:

  1. Washington: 37 percent 
  2. Virginia: 21 percent 
  3. Montana: 20 percent 
  4. Arizona: 16 percent 
  5. California and Colorado: 15 percent 

Washington was one of the first states to legalize marijuana and leads the country in terms of the tax rate applied to marijuana and cannabis-based products. Unlike many other states, local governments in Washington are not allowed to levy additional taxes on marijuana in their jurisdictions. Virginia, the state with the second-highest tax rate, has yet to begin allowing retailers to sell marijuana at the recreational level. The law was passed in 2021, and most legislators expect commercialization to start next year.

Which states see the greatest revenue generated through the commercialization of marijuana?

The total revenue generated depends on factors beyond just the taxation of marijuana, like population size. Therefore, the Urban Institute reported on the 2022 revenue as a total and per capita basis. The first states that saw the most largest sum from these taxes were:

Total (in millions)

  1. California: $774.4
  2. Washington: $517.0 
  3. Illinois: $466.8 
  4. Colorado: $353.7
  5. Oregon: $170.6

Per capita 

  1. Washington: $67
  2. Colorado: $61
  3. Nevada: $48
  4. Oregon: $40 
  5. Alaska: $39 

Source: Urban Institute 

Based on the available data, it is evident that Washington’s high tax rate on marijuana sales results in substantial revenue each year. These sales constitute approximately 1.5 percent of the state’s overall tax revenue. Only Colorado and Nevada generate a higher percentage of their total tax revenue from marijuana sales, with a figure of 1.7 percent.