Politics
Colorado’s Declining Marijuana Tax Revenue Is Partly Due To Lower Demand From Tourists As More States Legalize, Report Says
Colorado legislative analysts say part of the reason the state is seeing declining cannabis tax revenue is due to “falling demand as other states across the country legalize marijuana,” making sales from cannabis tourism “less pronounced.”
In its September Economic & Revenue Forecast report, Colorado Legislative Council Staff (LCS) looked at marijuana tax revenue trends, finding that it “continues to decline, but at a slowing rate.”
“The decline in marijuana tax revenue is largely due to falling consumption after the surge during the COVID-19 pandemic alongside falling demand as other states across the country legalize marijuana,” it said. “Additionally, an oversupply of marijuana has resulted in persistently low prices at both the wholesale and retail levels.”
Despite the fact that more state cannabis markets are coming online in states across the country, the analysts project that revenue will “stabilize” in the next fiscal year and “begin to increase” in fiscal years 2025-26 and 2026-27 “as prices and consumption rebound.”
“Prices for marijuana fell as pandemic-induced demand waned, marijuana tourism became less pronounced, and as the market matured,” the report says. “Tax revenue from marijuana is falling across most states where recreational marijuana is legal due to declining demand after the pandemic, but states that legalized marijuana early—like Colorado, Washington, and Oregon—are seeing the biggest declines in sales.”
Colorado Gov. Jared Polis (D) has occasionally joked about about not wanting other states to enact legalization because Colorado’s market has benefitted from the additional out-of-state cannabis tourism.
“A lot of other states have” legalized marijuana since Colorado, he said in April. “So that means there’s less tourism, of course, and we’re a little bit less special—but we are going to continue to lead in this area and double down.”
In 2020, Polis joked in a Twitter post that if Texas legalized marijuana it would “reduce tourism to Colorado, so make sure to consider Colorado first in any Texas decisions.”
On a similar note, Illinois’s governor acknowledged in July that a decent chunk of the state’s marijuana tax revenue have come from what he called “cannabis tourists” who reside in prohibitionist states and visit Illinois to buy regulated marijuana.
“People from Indiana, people from Iowa, people from Wisconsin, Kentucky, drive across the border and buy something in a dispensary in Illinois. Now, they’re not supposed to drive back over the border to their home states, so I assume they’re just staying in Illinois,” Gov. J.B, Pritzker (D) said.
In the latest LCS report on Colorado trends, meanwhile, analysts said that when “states first legalize marijuana, there is often a shortage of supply as cultivators slowly enter the market, which pushes up prices—a trend that contributed to the rapid growth seen in Colorado in FY 2014-15 through FY 2017-18.”
“This is often followed by oversaturation in marijuana production, resulting in falling prices which pushes out some producers until the market reaches equilibrium,” it said.
“Colorado had started to experience this trend prior to the pandemic in 2018 and 2019, demonstrated by falling prices and excise tax revenue. At the start of the pandemic, wholesale prices increased by over 30 percent between January 2020 and January 2021 as pandemic-induced restrictions resulted in surging demand for marijuana products. Prices then fell by 63 percent in the two years following, reaching a low point in April of 2023. Prices started to rebound since then, but ticked down in the most recent quarter.”
In Colorado, revenue from marijuana sales comes from a 15 percent excise tax, 15 percent sales tax and 2.9 general state sales tax.
The U.S. Census Bureau also recently released updated data on state marijuana market trends that showed Colorado has taken in about $898 million in cannabis tax dollars since the agency started tracking those 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 had sold more than $15 billion worth of legal marijuana products since the state’s first adult-use retailers opened in 2014—and that has generated more than $2.5 billion in cannabis tax revenue to support public programs and services.
Also last year, Colorado’s LCS released a report showing that Colorado generated more tax revenue from cannabis than alcohol or cigarettes during the last fiscal year
Meanwhile, an annual report on marijuana industry trends published last month by Denver, Colorado officials showcased how the local government has distributed hundreds of millions of dollars in cannabis tax revenue to public initiatives such as homelessness services, affordable housing and education in the first 10 years of legal sales.
While marijuana sales and the resulting tax and fee revenue were down for the second consecutive year in 2023, the report also showed a continuation of another trend: illicit cannabis activity is declining, offering more evidence about the potential benefits of enacting a system of regulated sales.
Sen. John Hickenlooper (D-CO), who served as governor when voters in his state approved legalization at the ballot despite his opposition at the time, said in a recent interview that while he’s now a strong supporter of the market and cannabis reform, there are “some things I wish we’d done differently,” including putting THC caps in the ballot measure, as opposed to adding them years later.
In a separate interview with Marijuana Moment this month, Hickenlooper separately touted the therapeutic potential of psychedelics, calling it “timely and appropriate” that states like Colorado are taking the lead on reforming laws around the substances after making history with marijuana legalization.
Colorado’s current top cannabis regulator also recently discussed the history of the state’s first-in-the-nation adult-use marijuana market, noting that she expects the lessons learned over the years will inform how her office approaches setting up Colorado’s new legal psychedelics program.
