Colorado is Making Way More on Marijuana Than They Thought

September 16th 2015

Alex Mierjeski

Colorado's latest fiscal year earnings report was perhaps more exciting than it sounds. In fact, it led to something of a tax holiday for people buying and selling weed.

What happened in Colorado.

Marijuana was free of its usual taxes on Wednesday—a 10 percent purchaser's tax and and a 15 percent excise tax for wholesale growers—thanks to an accounting fluke in Colorado's marijuana tax law. The accounting mistake suspended taxation due to flubbed overall weed revenue numbers. The holiday came after the state reported significantly higher returns on marijuana taxes than it had previously predicted, the Associated Press reported. Taxes on the recently-legalized drug returned Thursday.

The tax break, which observers said was a financial boon to marijuana consumers and producers, comes after the state reported its fiscal year earnings, which ended in June. Those numbers were much higher than expected: marijuana taxes drew in $70 million instead of the predicted $40 million—almost double the expected amount. Alcohol taxes, on the other hand, drew in only $42 million. Under state law, the underestimation triggered an automatic suspension of new taxes, which meant recreational marijuana taxes approved by voters in 2013 were temporarily lifted.

The big picture: Could weed be more profitable than alcohol?

Aside from creating a veritable weed-buying holiday, the earnings signaled another encouraging sign for fiscally-minded marijuana reform advocates: pot could be more economically potent than alcohol. Websites like High Times praised the nearly $40 million difference between alcohol and marijuana tax returns, and advocates pointed to the millions of dollars that missed the state's purse when the drug was still illegal.

“It’s crazy how much revenue our state used to flush down the drain by forcing marijuana sales into the underground market,” Mason Tvert, communications director for the Marijuana Policy Project said in a statement. “It’s even crazier that so many states are still doing it. Tax revenue is just one of many good reasons to replace marijuana prohibition with a system of regulation.”

Others with ties to the marijuana industry noted the successes of legalization in Colorado.

"In honor of it being an incredible year for the movement, I would like to wish you a happy tax holiday," rapper and noted cannabis enthusiast Snoop Dogg said in a video. "I love seeing the positive impact of the cannabis business in your beautiful state."

Big tax returns could be an important consideration for other states as they weigh the costs and benefits legalized medical and recreational marijuana could have—especially if it has the potential to bring in much more than alcohol.

However, as the AP reported, Colorado's figures do not include the state's 2.9 percent sales tax, meaning that alcohol could still bring in more tax revenue overall than marijuana. While recreational marijuana is taxed at 25 percent plus the state's sales tax, alcohol is taxed by volume, anywhere from 8 cents per gallon for beer to $2.28 per gallon for liquor, plus sales tax. The state reportedly does not keep data on general sales tax figures brought in by alcohol.

Still, observers note that marijuana revenue is substantial, with large portions being reinvested in the state.

"This will be the one day out of the year when the state won't generate significant revenue," Tvert said of Wednesday's tax holiday. "Over the other 364 days, it will bring in tens of millions of dollars that will be reinvested in our state."