As states legalize recreational marijuana, often the dollar signs that legislators and voters see create the bridge between those who hesitate to legalize and those who go “all in” with legalization. After recreational marijuana became legal in Colorado, communities searched for the big financial boost that marijuana tax revenue promised to deliver to schools only to be confused and disappointed about the small impact of the money. With headlines such as “Record Broken as Colorado Marijuana Sales Surpass $1 Billion” and “Colorado School Districts Only Receive Fraction of Marijuana Tax Dollars,” it’s no wonder Colorado residents are confused. In a three-part blog series that will roll out over the last three weeks in November, the Marijuana Education Initiative (MEI) brings you up-to-date on how marijuana tax revenue supports our schools and youth in ways that may not always be apparent.
Part 1: First Things First: Taxes and Distribution Overview
The first $40 million collected from the excise wholesale marijuana tax (money that is taxed on the product before it even gets to the dispensary) goes to a state program called the BEST (Building Excellent Schools Today) fund, which awards grants to local school districts to build and improve school facilities. This $40 million is intended to be used to upgrade aging schools, particularly those in rural districts where money for renovations is tight. “The fund prioritizes health, safety and security issues such as asbestos removal, new roofs, building code violations, and poor indoor air quality. BEST grants are competitive, awarded annually and in most cases must be supplemented with local district matching funds.”
In 2016, Colorado collected $5.7 million above that $40 million earmarked for the BEST fund. The additional money was transferred to a public school fund, where it contributes a fraction to cover annual public school expenses of more than $5 billion.
Wholesale marijuana is taxed at 15% before it even reaches the dispensary. Sales tax on marijuana at the dispensary is an additional 15%. Ninety percent of this sales tax is allocated to the state and 10% goes to local government. Local governments decide what to do with their 10%; the 90% that goes to the state is then split three ways: (1) the first $30 million off the top goes to the State Public School Fund (with general operating monies distributed primarily to rural school districts); (2) 28% of what remains goes to the general fund (money used to operate state government); and (3) the last 72% goes to the Marijuana Tax Cash Fund (more on these funds later). Sales tax on marijuana raises significant money for educational programs.
It is worth mentioning that an additional 2.9% sales tax is levied on all recreational and medicinal marijuana purchases, and this money goes into the Marijuana Tax Fund. This is the first and only time when marijuana purchased with a medical card is taxed, and this is why medical marijuana is less expensive than recreational marijuana. Medical marijuana purchases do not have to pay the additional taxes mentioned above.
Here is an overview of the appropriations approved by the Colorado State Legislature for fiscal year 2016–2017 (https://www.entrepreneur.com/article/289613#):