Proponents of legalizing recreational marijuana argue that, among other things, taxable pot sales would raise a tub of money for the state. But states that have gone down that hazy path are seeing the initial growth in revenue go flat:
Taxing recreational marijuana sales boosts state revenues, but strong initial growth doesn’t last, according to new data collected by the Marijuana Policy Project.
Cannabis supply has eventually exceeded demand in all mature state markets. That has driven down prices and therefore tax collections, which are typically set as a percentage of retail price.
…Colorado’s marijuana-related sales and excise tax revenues have collapsed since 2021, forcing lawmakers to take action to balance the marijuana cash fund.
…According to the Marijuana Policy Project data, marijuana-related tax collections are declining in six states that launched legal sales at least eight years ago: Alaska, California, Colorado, Nevada, Oregon and Washington. Tax collections are plateauing in Massachusetts, Michigan and Illinois, where legal sales began between six and eight years ago.
Revenues are growing in most of the remaining 14 states that legalized more recently. Initial growth in many of those states is more muted than the rapid rise enjoyed by the first states to legalize [Sophie Quinton, “States Can’t Count on Marijuana Tax Revenue Growth,” Arizona Capitol Times, 2026.07.02].
After a series of ballot-measure failures, South Dakota has missed the opportunity to enjoy as much early growth in revenue as it might have had it joined early-adopting states like Alaska, California, and Colorado. If South Dakota marijuana activists take another shot at convincing voters in 2028, and if they can avoid all the legal landmines Republicans have placed in the way of the initiative process, South Dakota will enter a crowded field where the free market has boosted supply, lowered prices, and reduced the ability of state governments to milk marijuana for tax revenue.