Although Maryland voters last week overwhelmingly approved allowing adults 21 and older to use marijuana for recreational use, state lawmakers must still put measures in place for cannabis to become officially legal in July.
That’s why the House of Delegates’ Cannabis Referendum and Legalization work group held a briefing Tuesday night to review how other states tax cannabis.
It was the latest of several virtual sessions the panel has held to not only prepare for regulating legal cannabis, but also to ensure minority-owned businesses can participate in the industry and to alter civil and criminal penalties for offenders.
Beginning next summer, adults can possess up to 1.5 ounces of marijuana and grow two plants out of public view.
On Tuesday, lawmakers received information on taxation from Jackson Brainerd, a fiscal programs principal with the National Conference of State Legislatures (NCSL).
Before he began his 25-minute presentation, he told lawmakers the organization doesn’t take a position on whether states should approve the legalization of cannabis.
Approximately 14 of the 18 states where recreational cannabis is legal impose a price-based tax.
Alaska, Maine and New Jersey tax cannabis based on weight.
Brainerd said an edible product would be taxed by the weight used in making it. However, he said some financial experts believe a weight-based approach may be more resistant to industry volatility because prices could drop as the cannabis market matures.
He also said using this tax structure can be more complex when it comes to implementing a new system for weighing the products and keeping a record of the plant.
Connecticut, Illinois and New York, which also taxes based on price, charge through a potency tax. It’s similar to a tax on alcohol based on its content measured by alcohol by volume and proof.
“Taxing based on potency probably best ensures the quality of the product is taken into consideration and could discourage the consumption of more potent products…and protect revenues in the event of falling prices,” Brainerd said. “However, [it’s] likely more burdensome from a compliance and administrative perspective.”
He also summarized some states’ tax rates for recreational cannabis, including:
- Alaska: $50 per ounce for flowers and mature buds; $25 per ounce for immature or abnormal buds.
- Colorado: 15% retail tax and 15% excise tax.
- Vermont: 6% sales and use tax and an excise tax of 14% of the sales price.
Neighboring Virginia, which approved legalizing cannabis last year, imposes a 21% retail marijuana tax at point of sale and a 5.3% sales and use tax.
Del. C.T. Wilson (D-Charles) asked how much it has cost some states to implement a recreational cannabis regulatory scheme.
Brainerd said smaller states such as Vermont and South Dakota spent nearly $1 million annually “to get things off the ground.”
He also warned that other revenue streams can decrease when cannabis is legalized. For example, officials in New Jersey noted collecting less money in court costs since cannabis became legal to sell in February 2021.
Wilson reiterated his support for legalization in Maryland.
“I truly believe that if we do this correctly, it may actually be a cost to start up. If we’re trying to keep people out of jail and keep people from dying, [then] we want them to consume a safe product,” he said. “We’re not going to be able to tax this at a stupendous rate as some of these other states have.”
According to NCSL, cannabis revenues in California and Colorado exceeded tobacco and alcohol revenues last year. The same occurred in Washington state in fiscal year 2021.
Del. David Moon (D-Montgomery) asked how many licenses each state that has legalized cannabis have granted.
Brainerd didn’t immediately know, but admitted “availability does seem somewhat tied to overall revenues.”
Moon said Maryland has less than 100 dispensary licenses for medical cannabis codified in the law.
“That’s not a very large number in retail outlets,” he said. “Our experience with cannabis dispensaries is very tiny in Maryland.”
Maryland voters joined those in Missouri on Election Day to pass cannabis ballot initiatives, approving adult recreational use for those 21 and older.
The Rhode Island General Assembly approved an act this year for adult use that includes a 20% tax broken down this way: 10% tax on cannabis, 7% sales tax and a 3% tax by the municipality where cannabis is sold. However, voters in 31 cities and towns allowed for businesses to operate a cannabis business and those in six municipalities will not allow retailers to open.
Voters in three other states — Arkansas, North Dakota and South Dakota — rejected measures to permit adult recreational use.
The House cannabis work group plans to hold two meetings next month, but the exact dates and times haven’t been determined.