Colorado legislative analysts say the state's cannabis tax revenues are declining in part because “demand is declining as other states in the country legalize marijuana,” and sales from cannabis tourism are “less significant.”
In its September Economic and Revenue Projection report, the Colorado Legislative Staff (LCS) looked at marijuana tax revenue trends and concluded that revenues “continue to decline, but at a slower rate.”
“The decline in marijuana tax revenues is primarily due to a decline in consumption that surged during the COVID-19 pandemic and reduced demand as other states across the country legalized marijuana,” the report states. “Furthermore, an oversupply of marijuana continues to keep prices depressed at both wholesale and retail prices.”
Even as cannabis markets move online in states across the country, analysts predict revenue will “stabilize” next fiscal year and then “begin to increase” in 2025-26 and 2026-27 as prices and consumption recover.
“Marijuana prices have fallen as a result of reduced demand due to the pandemic, declining marijuana tourism, and a maturing market,” the report states. “While tax revenues from marijuana have declined in most states with legal recreational marijuana due to declining demand following the pandemic, early marijuana legalization states, such as Colorado, Washington, and Oregon, have seen the largest declines in sales.”
Colorado Gov. Jared Polis (Democrat) has sometimes joked that he doesn't want other states to enact legalization because Colorado's market benefits from increased cannabis tourism from out of state.
“Since Colorado, many other states have legalized marijuana,” he said in April, “so naturally, we have fewer tourists and our specialness has faded a little, but we continue to lead the way in this space and we're going to keep working harder.”
In 2020, Governor Polis joked on Twitter that if Texas legalized marijuana, “it would reduce tourism to Colorado, so any decisions regarding Texas should consider Colorado first.”
Similarly, Illinois' governor acknowledged in July that a significant portion of the state's marijuana tax revenue comes from “cannabis tourists” who live in states that prohibit marijuana and visit Illinois to purchase regulated marijuana.
“People from Indiana, Iowa, Wisconsin, Kentucky cross the border to buy something at a pharmacy in Illinois. Right now, they're not allowed to cross the border back into their home states, so I think they're just staying in Illinois,” Gov. J.B. Pritzker (Democrat) said.
Meanwhile, in the latest LCS report on trends in Colorado, analysts note that “when a state first legalizes marijuana, it often experiences supply shortages as growers gradually enter the market, driving up prices. This trend contributed to the rapid growth Colorado saw from fiscal year 2014-15 to fiscal year 2017-18.”
“Marijuana production then often becomes saturated, causing prices to fall and forcing some producers out until the market balances,” the report said.
“In Colorado, this trend began to emerge in 2018 and 2019, pre-pandemic, and is manifested in declining prices and excise tax revenues. When the pandemic began, wholesale prices increased by more than 30% between January 2020 and January 2021 as demand for marijuana products surged due to pandemic-induced restrictions. Prices then fell 63% over the two-year period, reaching a nadir in April 2023. Prices have since begun to recover, but have declined slightly in the most recent quarter.”
In Colorado, revenue from marijuana sales comes from a 15% excise tax, a 15% sales tax, and a 2.9% state general sales tax.
The U.S. Census Bureau also recently released its latest data on the state's marijuana market trends, revealing that Colorado has received approximately $898 million in cannabis taxes since the bureau began tracking these figures in mid-2021. Colorado voters approved adult-use legalization in 2012, and sales began in 2014.
State officials reported late last year that Colorado retailers have sold more than $15 billion in legal marijuana products and generated more than $2.5 billion in cannabis tax revenue to support public programs and services since the state's first adult-use retail stores opened in 2014.
Also last year, Colorado's LCS released a report showing that Colorado generated more tax revenue from marijuana than from alcohol or tobacco last fiscal year.
Meanwhile, Denver, Colorado, officials released their annual marijuana industry report last month, detailing how in the first decade of legal sales, the local government has allocated hundreds of millions of dollars in marijuana tax revenue to homeless services, affordable housing, education and other public programs.
While marijuana sales and associated tax and fee revenues declined for the second consecutive year in 2023, the report also showed another trend continuing: Illegal cannabis activity is declining, providing further evidence of the potential benefits of instituting a regulated sales regime.
Sen. John Hickenlooper (D-Colorado), who served as governor when his state's voters approved legalization at the ballot box despite opposing it at the time, said in a recent interview that while he's now a strong supporter of cannabis markets and reform, “there are some things I wish we'd done differently,” such as setting a THC limit at the ballot box instead of adding it on years later.
In a separate interview with Marijuana Moment this month, Hickenlooper touted the therapeutic benefits of psychedelics and said it was “timely and appropriate” for states like Colorado to be leading the way in reforming their laws regarding these substances after making history by legalizing marijuana.
Colorado's current top cannabis regulator also recently spoke about the history of his state's first adult-use marijuana market, and said he hopes lessons learned over the years will guide how officials approach launching Colorado's new legal psychedelics program.
The IRS could continue applying 280E tax to marijuana for years before the rescheduling and seize assets from companies that owe it, officials say
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