Cannabis Law And Markets: How Taxes And Regulations Impact Sales

By Tom Adams, CEO Global Go Analytics

Growth is inevitable in legal cannabis markets, as a worldwide $200-billion legacy market moves regulated channels. But results will vary as regulators in each new market experiment to find the right formula for free and legal – but taxed and licensed – markets.

The first US states to allow sales to all adults have decisively shown that liberal licensing of storefronts and lower tax rates both help to increase sales in adult-use cannabis markets, and hence shrink the legacy market. Of the states that fully legalized cannabis in the early-to-mid-2010s, Colorado and Oregon have the most liberal regulations in these regards. In Colorado, the tax rate for cannabis is 15% and there is roughly one dispensary per 13,500 citizens while Oregon has one dispensary for every 5,600 citizens and a tax rate of 20%.

Both states have achieved very high sales, according to estimates from The Brightfield Group. In 2020, per capita sales in Colorado reached $303 while they hit $230 in Oregon. For comparison, California, which did legalize adult-use slightly later than these states in 2018 but also started with an extremely robust medical program, had just $104 in per-capita legal sales in 2020. Much of this can be attributed to the lack of dispensaries – just one for every 54,600 citizens. California’s effective tax rate ranges from 23-38% and thus drives many consumers toward the legacy market for both easier access and lower prices.

The industry experience in Washington—which also went adult-use legal in the middle of the 2010s—illustrates that more liberal licensing of store locations may be the more important factor, but only to a point. With one dispensary per 13,149 residents, Washingtonians spent $184 per capital according to Brightfield, well above California spending levels. But the state has a 37% effective tax rate, which has kept per capita spending well below those seen in Colorado and Oregon.

Four-State Comparison
	Stores/Capita	Effective Tax Rate	Spending/Capita
Colorado	13,553	15%	303
Washington	13,149	37%	184
Oregon	5,620	20%	262
California	54,611	23-38%	104

The tax and regulatory issues driving success (or hindering it) in markets in the US, Canada and around the world are comprehensively outlined in “FTI Consulting/Global Go Annual Report on Cannabis Law & Markets”, a 400-plus page report just published by Global Go Analytics.

Más contenido sobre cannabis en Español en El Planteo.