In recent piece, The New York Times editorial board called for a federal tax on cannabis and urged states to raise their own taxes to “dollars per joint, not cents.” That argument assumes cannabis is lightly taxed today—but across the country, the opposite is true.
Taxes on legal cannabis are higher than almost every industry in the United States and have generated nearly $25 billion since adult-use sales commenced in 2014. Despite these rates, efforts to increase cannabis levies are continuing to gain steam.
In 2025 alone, Maryland, Minnesota, Maine, Ohio, Michigan and California attempted to raise or expand cannabis taxes. This year, Colorado and Oklahoma are looking to do the same. Many of those proposals emerged as lawmakers confronted budget shortfalls and the expiration of federal pandemic aid. Cannabis has increasingly been treated as an untapped source of revenue.
In several large markets, cannabis taxes are layered on top of one another. Excise taxes are combined with state sales taxes, wholesale taxes, local taxes and, in some cases, potency-based taxes. In states such as Illinois, Michigan and Washington, the effective burden can exceed 40 percent. This is in addition to the federal tax burden cannabis businesses carry under §280E, which limits their ability to deduct ordinary operating expenses.
These structures are straining the legal market. High tax burdens are contributing to business closures (particularly among smaller operators) and pushing many consumers to the illicit market.
According to publicly available data, several highly taxed states, including California, Colorado, Illinois, and Washington, have experienced year-over-year declines in adult-use sales and industry job losses in recent years. At the same time, the illicit markets across these states remain entrenched. In California, one of the nation’s oldest legal cannabis markets, estimates suggest that roughly 60 percent of sales still occur outside the regulated system.
Higher taxes do not eliminate consumer demand. They simply change where consumers buy their cannabis.
Licensed businesses pay for testing, packaging, compliance systems, labor and sometimes local licensing. Unregulated sellers do not. When the legal price rises too far above the illicit alternative, price-sensitive consumers shift accordingly. That weakens the regulated market that legalization was intended to build. When tax increases take effect, the impact shows up quickly in wholesale pricing pressure, retailer margin compression, and shifts in purchasing behavior.
The cannabis industry is still new, but data tell us that the type of tax matters as much as the rate.
Hellbound and Down 