Marijuana just became legal in Colorado, but recreational sales of the drug will come with a big excise tax of 25%. Will that tax entice other state governments to follow Colorado's lead?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at marijuana taxes and the role they could play in funding state treasuries. Dan goes through the Colorado tax, noting that some of the proceeds will go toward building public schools while other money will go toward enforcing the regulations governing marijuana sales. Dan notes that the $100 million Colorado expects to earn in tax revenue over the law's first two years pales in comparison with Washington's $2 billion estimate in its first five years, with Washington imposing 25% taxes at all stages of production. Dan concludes by noting the difficulties states will have is finding the right balance in setting tax rates, pointing to cigarette taxes that have hit Altria (NYSE:MO), Lorillard (UNKNOWN:LO.DL), and Reynolds American (NYSE:RAI) hard and have also put state governments in a bind as cigarette use has declined, resulting in less tax revenue.