Where Do Cannabis Taxes Go?

Washington voters approved Initiative 502 to regulate and tax cannabis for a variety of reasons. Besides providing access to medical cannabis for those who need it and ending a costly war on drugs, voters and elected officials saw the potential for tax revenue to provide support for our strained state budget. It was originally estimated that the tax revenue generated from cannabis sales could reach just under $2 billion in five years. The first sales occurred in July 2014, so how much tax revenue have we collected, and where is it being spent?

The Washington State Liquor and Cannabis Board reported a total tax obligation of $64.9 million for the 2016 fiscal year, $185.7 million for 2017, and estimate $233.7 million 2018 [1]. The revised code of Washington chapter 69.50.540 stipulates how the funds are distributed. Some programs are given a set dollar amount while others receive a percentage based on revenue, with most of it going to “substance abuse prevention, research, education, and health care.” For example it directs 50 percent of the balance to help pay for the state’s Medicaid program, and “five thousand dollars to the University of Washington alcohol and drug abuse institute for the creation, maintenance, and timely updating of web-based public education materials providing medically and scientifically accurate information about the health and safety risks posed by marijuana use” [3]. Other one-time distributions occur, for example “Twenty-three thousand seven hundred fifty dollars to the department of enterprise services... to develop and adopt fire and building code provisions related to marijuana processing and extraction facilities.” [3]. Other directives in the law include money for “public health hotline that provides referrals to substance abuse treatment providers…”, [3] and contributions to community health centers and grant programs.

The original initiative did not redistribute any of this revenue to city and county governments but this has since been changed. Taxfoundation.org reports that 40 percent will go to the state general fund and local budgets. [2] Tax revenue is allocated to cities and counties based on the number of retail stores in their jurisdiction as well as the sales generated by those stores. The amount of tax revenue that can be distributed to local governments has been limited to $15 million per fiscal year until 2019, and $20 million per fiscal year after that. If a local government bans the licensing of cannabis businesses they are not eligible to receive any of these funds.

While the tax revenue from cannabis sales is not going to solve Washington’s biggest budget issues it is clearly supporting critical public health and education programs. You can view the RCW and all of the programs that the taxes are distributed to at http://app.leg.wa.gov/rcw/default.aspx?cite=69.50.540.


[1] http://lcb.wa.gov/marj/dashboard
[2] https://taxfoundation.org/marijuana-taxes-lessons-colorado-washington/
[3] http://app.leg.wa.gov/rcw/default.aspx?cite=69.50.540

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