Washington state makes big bucks taxing cannabis, so what does it do with all that money?

click to enlarge Washington state makes big bucks taxing cannabis, so what does it do with all that money?
Spokane County brought in $56 million in cannabis taxes in 2022.

Tax Day may be behind us, but when it comes to cannabis, taxation never stops, which makes this a good time to get refreshed on how Washington taxes cannabis and what the state does with that revenue.

When voters approved Initiative 502 in 2012, they did more than just legalize cannabis. They also voted to approve a tax scheme for the state's legal market. The ballot measure summary issued by the state read, in part, that the measure would "impose 25 percent excise taxes on wholesale and retail sales of marijuana, earmarking revenue for purposes that include substance-abuse prevention, research, education, and healthcare."

With the implementation of the legal market in 2014, the excise tax rate was raised to 37 percent, the second-highest rate in the nation. Consumers pay that every time they make a retail purchase.

In fiscal year 2022, the state generated $509.4 million in revenue from that tax. The National Association of State Budget Officers estimates that Washington spent $65.8 billion in total expenditures in fiscal 2022, which would mean the state's cannabis income amounts to just under 0.8 percent of the total budget.

According to estimates from Crosscut, cannabis taxes paid for just under 2 percent of total expenditures in the state's 2021-23 budget cycle, which ends in June.

But where is the cannabis income being spent?

Some goes back into the cannabis industry itself, paying for things like testing, enforcement and compliance. The bulk goes into health care. I-502 prescribed that once administration costs had been paid, 50 percent of revenue from cannabis would go into health care. In the current two-year state budget cycle, more than 58 percent of cannabis tax revenue went to health care

The state's general fund is the next largest recipient, taking in roughly a third of the cannabis income. The rest is distributed in much smaller amounts to other state-run programs including education or is spread around to local governments.

Spokane County generated $56.1 million in excise tax during fiscal 2022, or roughly 10 percent of the state's total. The county won't get anything near that amount of money back, however. Just $20 million of the total fiscal 2022 excise tax revenue is allocated for local governments to split among themselves, according to the Washington State Treasurer's Office.

If all these big numbers and the high tax rate have you questioning your personal cannabis budget, don't worry. Washington consistently ranks as one of the cheapest states in the country for retail cannabis. ♦

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