Over the past few years, America’s state legal cannabis sector has proven to be both resilient and lucrative. As one of the few industries declared essential during the onset of the coronavirus pandemic, cannabis saw increased sales month over month, providing states with much needed tax revenue at a time when their coffers were running low. More than a dozen states have already legalized recreational marijuana, and this year alone has seen New York, New Mexico, Virginia, and Connecticut pass adult use legislation, bringing the total number of states with recreational markets to 19.
As these recreational cannabis markets mature, experts predict that states will earn higher tax revenues thanks to increased sales. In 2020, California plus Colorado earned the most excise tax revenue from cannabis, earning $526 million and $307 million, respectively. According to projections for 2021, California and Colorado are expected to collect an estimated $757 million and $411 million in excise tax revenue, respectively. Alaska and Michigan, which collected the lowest excise tax revenue at $25 million and $31 million, are projected to earn $29 million and $75 million this year.
Cannabis is one of the fastest-growing sectors in the country currently generating billions in sales revenue and creating hundreds of thousands of jobs. The industry will most likely experience significant growth within the decade, especially with lawmakers initiating the process to deschedule cannabis at the federal level. Understandably, states that haven’t launched their own cannabis markets and even those with existing markets would want to cash in via cannabis taxes.
However, state regulators will have to ensure cannabis remains price competitive. Despite generating billions of dollars in cannabis sales, the industry is still plagued by the illicit market. Levying high taxes would increase the price, pushing customers to black market dealers who price their cannabis much more competitively. Colorado and Washington tax recreational cannabis via an ad valorem excise tax, which is based on the value or the cannabis. In California, cannabis is taxed with based on both an ad valorem and specific tax.
New York and Connecticut, which are some of the latest states to join the adult-use club after legalizing recreational marijuana this year, are among the only states with a potency-based tax. This tax is meant to address the possible harms that come with higher THC levels, and it would increase as the THC levels increase.
Illinois has a similar category-based tax system where cannabis flower is taxed at 10%, edibles at 20% and concentrates at 25%. As both the fledgling and older cannabis spaces mature, revenues are projected to increase.
All 19 states with recreational markets can expect increased cannabis tax revenues in financial year 2021. As those tax dollars grow, the unspoken message is that many cannabis sector players, including Grapefruit USA Inc. (OTCQB: GPFT), will also earn higher revenues and possibly improve their profitability.
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CNW420 spotlights the latest developments in the rapidly evolving cannabis industry through the release of two informative articles each business day. Our concise, informative content serves as a gateway for investors interested in the legalized cannabis sector and provides updates on how regulatory developments may impact financial markets. Articles are released each business day at 4:20 a.m. and 4:20 p.m. Eastern – our tribute to the time synonymous with cannabis culture. If marijuana and the burgeoning industry surrounding it are on your radar, CNW420 is for you! Check back daily to stay up-to-date on the latest milestones in the fast -changing world of cannabis.
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