Gov. Josh Shapiro announced his second budget proposal earlier this month. He did not seek large tax reform in his budget proposal. Instead, Shapiro touted his budget as a balanced budget that does not raise taxes. While the governor’s budget would not raise current taxes, it would create a new revenue source by legalizing and taxing recreational marijuana. Pennsylvania’s neighboring states have legalized and begun taxing marijuana, including Delaware, Maryland, New Jersey, New York and Ohio. Shapiro noted that Pennsylvania is losing out on an estimated $250 million in revenue every year that it does not legalize and tax the industry.

If Pennsylvania legalizes and taxes medical marijuana, what are its options? Shapiro proposed a 20% tax on the wholesale price of cannabis. The states that have legalized and are taxing marijuana have taken varied approaches, yet they fall into three general categories of excise taxes: percentage-of-price taxes; weight-based taxes; and potency-based taxes. Percentage-of-price taxes operate similar to a sales tax and are calculated as a percentage of the retail price. This tax is paid by the consumer and remitted to the state by the retailer. The marijuana tax tends to be higher than the state’s general sales tax. Across the country, the rates range from a low in Missouri of 6% to a high in Washington of 37%. In the states that have begun taxing recreational marijuana, this approach is the most common.