
Daniel T. McKillop
Partner
201-896-7115 dmckillop@sh-law.comPartner
201-896-7115 dmckillop@sh-law.comWhen states legalize cannabis, taxation is often one of the most hotly contested topics. To date, 18 states and Washington, D.C. have legalized recreational cannabis for adult use, while medical marijuana is legal in 37. Because each state has its own regulations, taxation schemes vary significantly.
Cannabis can be taxed at several different points of the production and distribution process. It can also be taxed at both the state and local level. Should the federal government decide to legalize cannabis, the tax scheme will also likely change to include federal taxes.
At this point, there are several different tax schemes being employed by states that have legalized recreational cannabis. They include:
Additionally, many states levy a cannabis excise tax in addition to the regular state sales tax.
In New Jersey, recreational cannabis will be subject to two state taxes and a local tax. In addition to the state sales tax of 6.625% paid by consumers, cannabis growers will be subject to a gradually increasing excise tax.
For the first nine months of legal sales, the tax will be 33% of 1% of the average retail price per ounce. Thereafter, the tax will depend on the cost per ounce of cannabis, as follows:
New Jersey municipalities can also enact by ordinance a local cannabis tax that may not exceed 2% for cannabis cultivators, manufacturers, and/or retailers; and 1% for wholesalers. The tax percentage is based on the receipts for each sale and must be paid directly to the municipality.
Recreational Marijuana Tax in Other States
In a recent report, entitled “Taxing Marijuana: Which Recreational States Levy The Highest Taxes?”, the Chamber of Commerce summarized the taxing structures and rates used by states that have legalized recreational cannabis. Below is a brief summary:
The report also discusses which recreational states levy the highest taxes. While Washington’s taxes are the highest, it’s not the most expensive place to buy legal cannabis. Instead, Alaska holds that title. In Alaska, consumers pay $45 per eighth ounce. Nevada comes in second, with consumers paying $43 per eighth ounce. California charges $41, while Massachusetts and Washington sell an eighth for about $35.
For businesses looking to enter New Jersey’s legal cannabis industry, it is important to understand how products will be taxed. Of course, taxation is just one issue that businesses must address, with other key considerations including licensing, site construction/purchase/leasing, insurance, employee hiring/training, and marketing. For comprehensive guidance navigating the evolving cannabis industry, we encourage businesses to consult with a member of the Scarinci Hollenbeck Cannabis Law Group.
If you have any questions or if you would like to discuss the matter further, please contact Dan McKillop, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:
Disclaimer: Possession, use, distribution, and/or sale of cannabis is a Federal crime and is subject to related Federal policy. Legal advice provided by Scarinci Hollenbeck, LLC is designed to counsel clients regarding the validity, scope, meaning, and application of existing and/or proposed cannabis law. Scarinci Hollenbeck, LLC will not provide assistance in circumventing Federal or state cannabis law or policy, and advice provided by our office should not be construed as such.
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