Alaska marijuana taxes bring in 1% of state’s revenue

(The Center Square) — Alaska receives about 1% of its total revenue each year from marijuana taxes, according to a recent report from the Tax Foundation.

In a state that does not have individual income or a state sales tax, the taxes collected on the multimillion dollar marijuana industry, sustains many government programs derived from the millions received in taxes. Alaska collected $29.9 million in cannabis taxes in 2022, according to the report.

The largest chunk of cannabis taxes, about half, goes to programs to reduce Alaska’s recidivism. The state’s general fund and substance abuse treatment programs each receive the other half at 25% each.

Gov. Mike Dunleavy established an Advisory Task Force on Recreational Marijuana in September last year to review the state’s taxes and regulations, and make recommendations for improvement. In the area of taxation, the task force was asked to “model potential changes to the existing tax structure applicable to recreational marijuana businesses.”

The task force recommended reduction of the current weight-based tax to 25% of the current rate. Long term, the Task Force advised the removal of weight-based taxation in favor of a standard sales tax at 3%, which has since been amended to 10% effective January 1, 2025.

The key to taxing marijuana is to measure it by potency, if possible, or by weight, according to the Tax Foundation report.

“The weight-based approach would capture harm derived from the use of smokable products,” the Tax Foundation said in its report. “Eventually, when product testing for THC content in plant materials becomes less costly, products taxed by weight can transition into being taxed by potency.

“In the short term, a weight-based approach captures externalities better than an ad valorem system and is simple enough to allow new products to enter the market without prohibitively high barriers to product testing simply for tax purposes.”