Washington state adult-use cannabis generates huge impacts, but tax burden high

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Washington state’s adult-use marijuana industry directly employed 11,330 workers and generated more than $1.4 billion in revenue in 2020, according to a first-ever economic analysis of the market.

The study – conducted by Seattle-based High Peak Strategy and commissioned by the Washington CannaBusiness Association (WACA) nine years after voters legalized a commercial market – found that the economic impact of adult-use cannabis totaled:

  • 18,360 jobs.
  • $876.5 million in labor income.
  • $2.7 billion in revenue.

The firm counted more than 1,600 businesses holding 2,795 cannabis licenses in 2020. Tax revenue totaled $695.4 million.

Despite those impressive numbers and 23% annual revenue growth between 2015 and 2020, there is a downside:

The state’s excise tax rate of 37% on adult-use cannabis is by far the highest such tax in the U.S., said Spencer Cohen, founder and principal of High Peak Strategy.

He said the average tax rate – including the excise tax and state and local sales taxes – totals 46.2%, which pushes some consumers to the illicit market.

Licensed business owners in Washington state, particularly processing and retail operations, express concerns that burdensome taxes and state regulations hinder their ability to scale up, he said.

Access to capital also is a major issue, Cohen added, noting that the state’s residency requirement inhibits outside investment.

“While Washington was a first-mover in the legalization of recreational cannabis, in the view of many businesses interviewed for this study, it has since fallen behind other states in areas of regulation and taxes to support the statewide industry,” Cohen wrote.

Cohen compiled his report from state and federal data, interviews, research in other states and other sources.

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Vicki Christophersen, WACA’s executive director, said the research will be used to help educate lawmakers and “hopefully help everybody understand who we are and the contribution we make.”

She said that although the high tax rate has been a good thing for the state in generating revenue, “it becomes very burdensome to the industry” and undermines long-term business sustainability.