The Ways You Can Make Money Off Legal Marijuana
Legal marijuana has meant a lot of different things for a lot of different people. For the flower celebrating pot heads amongst us, it means not having to walk into a dingy alleyway and potentially get arrested to acquire a joint. And for those not shy of an investment, it’s potentially the next Bitcoin.
For the last 100 years, there was nothing legal about making money from marijuana. Now, investors are taking the chance to make millions selling something that literally doesn’t require selling; it’s already sold, and people have loved this very prohibited substance for a very long time.
There are hundreds of ways to make money off legal marijuana; from isolating cannabinoids and selling them as raw materials, to growing hemp for the purpose of CBD product manufacture, all the way down to manufacturing grow equipment for cultivators. The avenues through which investors, and even regular people, can search for a profit is virtually infinite.
For the Green Thumb: Grow Cannabis
An obvious way to make money off legal marijuana is to grow cannabis. There is an overwhelming demand for cannabis at the moment, even if it isn’t going to be smoked. It is often used to manufacture other cannabis-derived products such as CBD oils, isolate or edibles. Plus, this is arguably the most laborious part of cannabis product manufacture: growing it.
With that said, a grow operation needs space, time and a lot of skill, not to mention customers. And there are a lot of those, like the mountains of cannabis growers in the Emerald Triangle. Aside from huge competition, there’s money to be made in being a cannabis or hemp farmer.
For the Chemist: Extract Cannabinoids
We might be well and truly past the days of money-making cannabis farms. The future of cannabis is looking more and more like a scientific experiment with cannabinoid extraction (but of course, we still need farms for that). Isolated cannabinoids are becoming increasingly popular in the USA, and are beginning to intersect with pharmaceuticals (take GW Pharmaceutica’s Sativex, for example).
Yes – there are pharmaceutical companies that want to buy pure, isolated cannabinoids for the purpose of manufacturing pharmaceutical-grade medicines. A lot of technology is required for cannabinoid extraction and a super nifty, chemical mind. Development in cannabinoid extraction is growing in popularity and demand.
For the People Person: Be a Budtender
Seeing a cannabis dispensary while walking through the streets of San Francisco is just as likely as seeing a Walmart. They are, well, everywhere. And they all need well-educated, friendly retail staff. Some of us could only have dreamed of having a part-time job in a cannabis dispensary as little as a decade ago. Now, it’s a real opportunity for those who want to work in the front-of-house aspect of the cannabis industry.
A love of cannabis and a friendly attitude is all that’s really required to be a budtender. However, given the increase in the number of people who want the job, it’s not always that easy to acquire one.
For the Artist: Design, Design, Design
The projected market value of CBD and other cannabis products is steadily climbing. Every year, there’s a new and bigger estimate on how much the cannabis industry will be worth. There are new companies and product manufacturers popping up everywhere. And yes – their websites, products, and labels need design elements too.
Website designers can make a ton of money from big investors starting cannabis businesses. This is good for writers, graphical artists and those who know something about website building.
For the Money Bags: Invest!
Then there are those who don’t necessarily want to do much at all but have some money to make someone else’s cannabis business come true. The thing with investing in the cannabis industry is there are almost endless avenues through which one can step in. Think about it. An investor can pump money into any of the following aspects of the cannabis industry:
- Cannabis retail businesses
- Cannabis wholesale businesses
- Cannabis farms
- Manufacture of cannabis-related grow equipment
- CBD or THC product manufacture
- Pharmaceutical-grade cannabinoid extraction
- Extraction equipment and technology
- Research and development
These are literally just a handful of the different places an investor can invest some money into the cannabis industry. While some of them are peripheral aspects of the cannabis industry, they are nonetheless in high demand.
There are numerous ways for just about anybody to make money off legal marijuana. There even exist professional, influential, Instagram-famous joint rollers who roll specialty joints for a large sum of money. The sky really is the limit in an industry as big and new as cannabis, and there’s even some room for creativity and innovation!
Legal marijuana has meant a lot of different things for a lot of different people. For those not shy of an investment, it’s potentially the next Bitcoin.
The State of State (and Local) Tax Policy
- Some Background
- Federal Budget
- What are the sources of revenue for the federal government?
- How does the federal government spend its money?
- What is the breakdown of revenues among federal, state, and local governments?
- How do US taxes compare internationally?
- Federal Budget Process
- How does the federal budget process work?
- What is the history of the federal budget process?
- What is the schedule for the federal budget process?
- What is reconciliation?
- How is a budget resolution enforced?
- What is PAYGO?
- What are rescissions?
- Federal Budget Outlook
- How accurate are long-run budget projections?
- What have budget trends been over the short and long term?
- How much spending is uncontrollable?
- What are tax extenders?
- What options would increase federal revenues?
- What does it mean for a government program to be off-budget?
- How did the TCJA affect the federal budget outlook?
- Taxes and the Economy
- How do taxes affect the economy in the short run?
- How do taxes affect the economy in the long run?
- What are dynamic scoring and dynamic analysis?
- Do tax cuts pay for themselves?
- On what do economists agree and disagree about the effects of taxes on economic growth?
- What are the economic effects of the Tax Cuts and Jobs Act?
- Economic Stimulus
- What is the role of monetary policy in alleviating economic downturns?
- What are automatic stabilizers and how do they work?
- What characteristics make fiscal stimulus most effective?
- Distribution of Tax Burdens
- How are federal taxes distributed?
- Are federal taxes progressive?
- How should progressivity be measured?
- What is the difference between marginal and average tax rates?
- What criticisms are levied against standard distributional analysis?
- How should distributional tables be interpreted?
- Who bears the burden of the corporate income tax?
- Who bears the burden of federal excise taxes?
- How do financing methods affect the distributional analyses of tax cuts?
- How do taxes affect income inequality?
- Tax Expenditures
- What are tax expenditures and how are they structured?
- What is the tax expenditure budget?
- Why are tax expenditures controversial?
- What are the largest tax expenditures?
- How did the TCJA affect tax expenditures?
- Tax Gap and Tax Shelters
- What is the tax gap?
- What does the IRS do and how can it be improved?
- What is a tax shelter?
- Recent History of the Tax Code
- What did the 2008–10 tax stimulus acts do?
- What did the American Taxpayer Relief Act of 2012 do?
- How did the Tax Cuts and Jobs Act change personal taxes?
- How did the Tax Cuts and Jobs Act change business taxes?
- Federal Budget
- Key Elements of the U.S. Tax System
- Individual Income Tax
- What is the standard deduction?
- What are itemized deductions and who claims them?
- How did the TCJA change the standard deduction and itemized deductions?
- What are personal exemptions?
- How do federal income tax rates work?
- What are tax credits and how do they differ from tax deductions?
- How do phaseouts of tax provisions affect taxpayers?
- Capital Gains and Dividends
- How are capital gains taxed?
- What is the effect of a lower tax rate for capital gains?
- What is carried interest, and how is it taxed?
- How might the taxation of capital gains be improved?
- What is the AMT?
- Who pays the AMT?
- How much revenue does the AMT raise?
- How did the TCJA change the AMT?
- Taxes and the Family
- What is the child tax credit?
- What is the adoption tax credit?
- What is the earned income tax credit?
- Do all people eligible for the EITC participate?
- How does the tax system subsidize child care expenses?
- What are marriage penalties and bonuses?
- How did the TCJA change taxes of families with children?
- Taxes and the Poor
- How does the federal tax system affect low-income households?
- What is the difference between refundable and nonrefundable credits?
- Can poor families benefit from the child tax credit?
- Why do low-income families use tax preparers?
- How does the earned income tax credit affect poor families?
- What are error rates for refundable credits and what causes them?
- How do IRS audits affect low-income families?
- Taxes and Retirement Saving
- What kinds of tax-favored retirement arrangements are there?
- How large are the tax expenditures for retirement saving?
- What are defined benefit retirement plans?
- What are defined contribution retirement plans?
- What types of nonemployer-sponsored retirement savings accounts are available?
- What are Roth individual retirement accounts?
- Who uses individual retirement accounts?
- How does the availability of tax-favored retirement saving affect national saving?
- What’s the difference between front-loaded and back-loaded retirement accounts?
- What is an automatic 401(k)?
- How might low- and middle-income households be encouraged to save?
- Taxes and Charitable Giving
- What is the tax treatment of charitable contributions?
- What entities are tax-exempt?
- Who benefits from the deduction for charitable contributions?
- How would various proposals affect incentives for charitable giving?
- How large are individual income tax incentives for charitable giving?
- How did the TCJA affect incentives for charitable giving?
- Taxes and Health Care
- How much does the federal government spend on health care?
- Who has health insurance coverage?
- Which tax provisions subsidize the cost of health care?
- How does the tax exclusion for employer-sponsored health insurance work?
- What are premium tax credits?
- What tax changes did the Affordable Care Act make?
- How do health savings accounts work?
- How do flexible spending accounts for health care expenses work?
- What are health reimbursement arrangements and how do they work?
- How might the tax exclusion for employer-sponsored health insurance (ESI) be reformed?
- Taxes and Homeownership
- What are the tax benefits of homeownership?
- Do existing tax incentives increase homeownership?
- Taxes and Education
- What tax incentives exist for higher education?
- What tax incentives exist to help families pay for college?
- What tax incentives exist to help families save for education expenses?
- What is the tax treatment of college and university endowments?
- Tax Complexity
- Why are taxes so complicated?
- What are the benefits of simpler taxes?
- What policy reforms could simplify the tax code?
- Wealth Transfer Taxes
- How do the estate, gift, and generation-skipping transfer taxes work?
- Who pays the estate tax?
- How many people pay the estate tax?
- What is the difference between carryover basis and a step-up in basis?
- How could we reform the estate tax?
- What are the options for taxing wealth transfers?
- What is an inheritance tax?
- Payroll Taxes
- What are the major federal payroll taxes, and how much money do they raise?
- What is the unemployment insurance trust fund, and how is it financed?
- What are the Social Security trust funds, and how are they financed?
- Are the Social Security trust funds real?
- What is the Medicare trust fund, and how is it financed?
- Excise Taxes
- What are the major federal excise taxes, and how much money do they raise?
- What is the Highway Trust Fund, and how is it financed?
- Energy and Environmental Taxes
- What tax incentives encourage energy production from fossil fuels?
- What tax incentives encourage alternatives to fossil fuels?
- What is a carbon tax?
- Business Taxes
- How does the corporate income tax work?
- What are pass-through businesses?
- How are pass-through businesses taxed?
- Is corporate income double-taxed?
- Tax Incentives for Economic Development
- What is the new markets tax credit, and how does it work?
- What is the Low-Income Housing Tax Credit and how does it work?
- What are Opportunity Zones and how do they work?
- Taxes and Multinational Corporations
- How does the current system of international taxation work?
- How do US corporate income tax rates and revenues compare with other countries’?
- What are the consequences of the new US international tax system?
- How does the tax system affect US competitiveness?
- How would formulary apportionment work?
- What are inversions, and how will TCJA affect them?
- What is a territorial tax and does the United States have one now?
- What is the TCJA repatriation tax and how does it work?
- What is the TCJA base erosion and anti-abuse tax and how does it work?
- What is global intangible low-taxed income and how is it taxed under the TCJA?
- What is foreign-derived intangible income and how is it taxed under the TCJA?
- Individual Income Tax
- How Could We Improve the Federal Tax System?
- Comprehensive Tax Reform
- What is comprehensive tax reform?
- What are the major options for comprehensive tax reform?
- Broad-Based Income Tax
- What is a broad-based income tax?
- What would and would not be taxed under a broad-based income tax?
- What would the tax rate be under a broad-based income tax?
- National Retail Sales Tax
- What is a national retail sales tax?
- What would and would not be taxed under a national retail sales tax?
- What would the tax rate be under a national retail sales tax?
- What is the difference between a tax-exclusive and tax-inclusive sales tax rate?
- Who bears the burden of a national retail sales tax?
- Would tax evasion and avoidance be a significant problem for a national retail sales tax?
- What would be the effect of a national retail sales tax on economic growth?
- What transition rules would be needed for a national retail sales tax?
- Would a national retail sales tax simplify the tax code?
- What can state and local sales taxes tell us about a national retail sales tax?
- What is the experience of other countries with national retail sales taxes?
- What did the President’s Advisory Panel on Federal Tax Reform say about the national retail sales tax?
- Value Added Tax (VAT)
- What is a VAT?
- How would a VAT be collected?
- What would and would not be taxed under a VAT?
- What would the tax rate be under a VAT?
- What is the difference between zero rating and exempting a good in the VAT?
- Who would bear the burden of a VAT?
- Is the VAT a money machine?
- How would small businesses be treated under a VAT?
- What is the Canadian experience with a VAT?
- Why is the VAT administratively superior to a retail sales tax?
- What is the history of the VAT?
- How are different consumption taxes related?
- Other Comprehensive Tax Reforms
- What is the flat tax?
- What is the X-tax?
- Recent Comprehensive Tax Reform Proposals
- Simple, Fair, and Pro-Growth: Proposals to Fix America’s Tax System, Report of the President’s Advisory Panel on Federal Tax Reform, November 2005
- The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform, December 2010
- Debt Reduction Task Force, “Restoring America’s Future,” Bipartisan Policy Center, November 2010
- The Tax Reform Act of 2014: Fixing Our Broken Tax Code So That It Works for American Families and Job Creators, House Ways and Means Committee
- The Graetz Competitive Tax Plan, Updated for 2015
- Return-Free Tax Filing
- What is return-free filing and how would it work?
- What are the benefits of return-free filing?
- What are the drawbacks of return-free filing?
- How would the tax system need to change with return-free filing?
- Who would qualify for return-free filing?
- Would return-free filing raise taxes?
- What was the experience with return-free filing in California?
- What other countries use return-free filing?
- Comprehensive Tax Reform
- The State of State (and Local) Tax Policy
- State and Local Revenues
- What are the sources of revenue for state governments?
- What are the sources of revenue for local governments?
- Specific State and Local Taxes
- How do state and local individual income taxes work?
- How do state and local sales taxes work?
- How do state and local property taxes work?
- How do state and local corporate income taxes work?
- How do state estate and inheritance taxes work?
- How do state earned income tax credits work?
- How do state and local severance taxes work?
- How do state and local soda taxes work?
- How do marijuana taxes work?
- Fiscal Federalism and Fiscal Institutions
- How does the deduction for state and local taxes work?
- What are municipal bonds and how are they used?
- What types of federal grants are made to state and local governments and how do they work?
- What are state rainy day funds, and how do they work?
- What are tax and expenditure limits?
- What are state balanced budget requirements and how do they work?
- State and Local Revenues
How do marijuana taxes work?
Specific State and Local Taxes
How do marijuana taxes work?
Marijuana sales are legal and taxed in nine states. States currently levy three types of marijuana taxes: as a percentage of price (either the retail or wholesale price), based on weight (i.e., per ounce), and based on the drug’s potency (i.e., THC level). Some states use a combination of these taxes.
HOW MUCH REVENUE DO STATE AND LOCAL GOVERNMENTS RAISE FROM MARIJUANA TAXES?
Although prohibited under federal law, marijuana sales are legal and taxed in nine states: Alaska, California, Colorado, Illinois, Massachusetts, Michigan, Nevada, Oregon, and Washington. Marijuana is legal in Maine and Vermont but neither state has established its tax system yet. The District of Columbia also legalized marijuana but Congress currently prevents the city from regulating and taxing sales (figure 1).
Colorado and Washington have collected marijuana taxes since 2014. In calendar year 2018, Colorado collected $267 million and Washington collected $439 million in state marijuana taxes, or roughly 1 percent of state and local own-source revenue in each state. Four other states reported a full year’s worth of state marijuana tax revenue in 2018: Alaska ($15 million), California ($354 million), Nevada ($87 million), and Oregon ($94 million). All totals were less than 1 percent of state and local own-source general revenue. (Note: None of these totals include local tax revenue.)
Medical marijuana is legal in 33 states and some of these states levy a tax on the purchase. But these tax rates are often the same as or close to the state’s general sales tax rate and do not raise much revenue.
HOW DO MARIJUANA TAX RATES DIFFER?
There are three ways state and local governments tax marijuana.
Percentage-of-price. These taxes are similar to a retail sales tax where the consumer pays a tax on the purchase price and the retailer remits it to the state. A few states levy their percentage of price tax on the wholesale transaction, but it is assumed this cost is then passed on to the consumer in the final purchase price. Some states also let localities levy a percentage of price tax—typically with a maximum rate.
Weight-based. These taxes are similar to cigarette taxes, except instead of taxing per pack of cigarettes the tax is based on the weight of the marijuana product. States with this type of tax also typically set different rates for different marijuana products. For example, California levies a $9.65 per ounce tax on marijuana flowers, a $2.87 per ounce tax on marijuana leaves, and a $1.35 per ounce tax on fresh plant material. As with other wholesale taxes, it is assumed most of this cost is passed on to the consumer in the final purchase price.
Potency-based. These taxes are similar to alcohol taxes, except instead of taxing drinks with a higher percentage of alcohol at higher rates (i.e., liquor is taxed at a higher rate than beer), the tax is based on the THC level of the marijuana product. Illinois is currently the only state with a THC-based tax. It taxes products with a TCH content of 35 percent or less at 10 percent of retail price and those with more than 35 percent at 25 percent of retail price. All marijuana-infused products (e.g., edibles) are taxed at 20 percent of retail price.
Some states also levy their general sales tax on the purchase of marijuana in addition to the excise taxes.
how do states use marijuana revenue?
So far, every state that taxes marijuana has dedicated at least a portion of the resulting revenue to specific programs:
- Alaska sends half of its revenue to its general fund and half to programs aimed at reducing repeat criminal offences.
- California’s revenue pays for administrative costs associated with marijuana legalization, and then uses excess funds for programs related to drug use, including economic development, academic studies, and youth programs.
- Colorado’s revenue is dedicated to education programs.
- Illinois’s revenue first pays for administrative costs associated with marijuana legalization. Any remaining revenue is then divided among the general fund, programs that supporting criminal justice reform efforts, substance abuse programs, and local government transfers.
- When Maine begins collecting tax revenue, it will evenly split its revenue between public health and safety programs and law enforcement training programs associated with marijuana legalization.
- Massachusetts distributes its revenue to various public safety programs.
- Nevada’s revenue is sent to education programs and its rainy-day fund.
- Oregon dedicates its revenue to education programs, drug prevention and treatment programs, and transfers to local governments.
- Washington dedicates its revenues to health care programs.
Updated May 2020
Dadayan, Lucy. 2019. “Are States Betting on Sin? The Murky Future of State Taxation.” “Washington, DC: Urban-Brookings Tax Policy Center.
Marron, Donald. 2015. “Should We Tax Internalities Like Externalities?” Washington, DC: Urban-Brookings Tax Policy Center.
Marron, Donald, and Adele Morris. 2016. “How Should Governments Use Revenue from Corrective Taxes?” Washington, DC: Urban-Brookings Tax Policy Center.
How much revenue do state and local governments raise from marijuana taxes? Although prohibited under federal law , marijuana sales are legal and taxed in…