States Collected $3.55 Billion in Cannabis Excise Tax Revenue. It’s Still Federally Illegal.

Cannabis is still a Schedule I substance under federal law. That hasn’t stopped the U.S. Census Bureau from publishing detailed, quarterly breakdowns of how much money states are pulling in from cannabis excise taxes, and the latest numbers are hard to ignore. Between July 2025 and June 2026, 30 states plus D.C. collected an estimated $3.55 billion from cannabis sales taxes alone.

The federal government won’t legalize the plant, but it’s certainly counting the money it generates. That contradiction sits at the center of this year’s report, and it’s worth taking a look at, because the real story isn’t just about the total. It’s about how states are learning, sometimes the hard way, to tax cannabis without pushing customers back to the unregulated market.

What Did the Census Bureau Find About Cannabis Tax Revenue?

The Census Bureau began tracking cannabis excise tax collections in 2021 through its Quarterly Summary of State and Local Government Tax Revenue (QTAX) survey. At that point, only 19 states and D.C. had a cannabis excise tax on the books. Five years later, that number has grown to 30 states plus D.C., an increase of 11 new markets.

Alabama is the newest addition. The state’s medical cannabis law was actually enacted back in 2021, but licensing delays and legal challenges kept product off shelves until medical-only sales finally launched in May of this year.

Other recent entrants include Maryland (recreational sales started July 2025), Delaware (adult-use sales began August 2025), and Ohio (recreational sales launched August 2024). Connecticut, Minnesota, Mississippi, New Mexico, Rhode Island, Vermont, and West Virginia rounded out the wave of states that came online between 2021 and 2023.

Since the Census Bureau started tracking this data, total cannabis excise tax revenue has climbed 15.7%, from $3.06 billion in fiscal year 2022 to $3.55 billion in fiscal year 2026. More states collecting taxes, plus maturing markets in existing states, is driving that growth.

Why Did California’s Cannabis Tax Revenue Drop, Then Recover?

If you look at a chart of nationwide cannabis excise tax collections, there’s a noticeable dip in FY2023. That drop traces almost entirely back to one state: California.

Prior to FY2023, California charged both a 15% retail excise tax and a separate cultivation tax on cannabis growers. In July 2022, the state eliminated the cultivation tax entirely. The goal was to ease the financial burden on the legal market, bring prices down, and make it harder for the unregulated market to undercut licensed retailers.

The immediate effect on state revenue was significant. California’s cannabis tax collections fell from $878.56 million in FY2022 to $528.23 million in FY2023, a drop of more than $350 million in a single year. Because California is the largest legal cannabis market in the country, that single policy change was enough to pull down the national total for that fiscal year.

The takeaway here isn’t that California made a mistake. It’s that tax policy in this industry is genuinely difficult to get right. Total collections climbed again in the years following California’s adjustment, as more states entered the market and existing ones matured. But California’s experience is a clear example of the balancing act every state faces: collect enough tax revenue to make the program worthwhile, without pricing the legal market out of competition with the guy down the street who doesn’t pay any taxes at all.

How Are States Balancing Tax Revenue Against the Unregulated Market?

This is really the core tension running through the entire report. States want cannabis tax revenue. Lawmakers like the idea of a new funding source for schools, infrastructure, or public health programs. But if the tax burden pushes legal prices too far above what the unregulated market charges, consumers simply go back to buying from unlicensed sources, and the state collects nothing.

States have taken very different approaches to solving this problem, and the results show up clearly in the per capita data. Washington and Montana each collect more than $50 per resident annually in cannabis excise taxes, the highest in the nation, driven by retail excise rates of 37% and 20% respectively. Those are aggressive rates, but both states have mature, well-established legal markets that appear able to absorb them.

Alaska takes a completely different approach. The state collects more than $30 per resident despite having no retail excise tax whatsoever. Instead, Alaska relies entirely on a $50-per-ounce cultivation tax charged when cannabis is transferred to licensed retailers. It’s a structure that pushes the tax burden further up the supply chain rather than tacking it onto the final sale.

Generally speaking, states with recreational markets collect more tax revenue per resident than medical-only states, which remain more common across the South. That’s not surprising given the smaller customer base medical programs typically serve.

Which States Have the Fastest-Growing Cannabis Tax Bases?

Two states stand out for rapid growth in this year’s data: Minnesota and Delaware.

Minnesota issued 324 new cannabis business licenses in 2025 and raised its excise tax rate from 10% to 15%. The combination of a rate hike and market expansion paid off. The state collected $34.44 million in FY2026, more than double the $16.57 million it collected the year before. As more Minnesota businesses get licensed and open their doors, that number is expected to keep climbing.

Delaware only began collecting cannabis excise taxes in August 2025, at a 15% rate. Even with a short track record, revenue is already rising steadily as newly licensed businesses enter the market and build out their customer base.

These two states are useful case studies for what’s coming next. Several other states are still in the early stages of their recreational markets, and if Minnesota and Delaware are any indication, tax collections in those states will likely see similar growth curves as licensing ramps up and retail locations multiply.

Why Does the Federal Government Count Money From an Illegal Plant?

Here’s the part that deserves more attention than it usually gets: recreational cannabis is still classified as a Schedule I controlled substance under federal law. It’s illegal to grow, sell, or possess under the Controlled Substances Act, full stop.

And yet the Census Bureau, a federal agency, publishes a quarterly report meticulously tracking how much tax revenue states are pulling in from cannabis sales. Rob Simon, the survey statistician who authored this year’s report, writes about state cannabis tax collections with the same straightforward tone used for reports on lottery ticket sales or sports betting revenue.

That’s not a criticism of the Census Bureau. Its job is to measure what’s happening in state and local government finance, regardless of federal drug policy. But it does highlight an odd reality: the same federal government that keeps cannabis businesses from accessing banking services, deducting normal business expenses on federal taxes, or operating across state lines is also comfortable cataloging billions of dollars in state tax revenue generated by that same industry.

For an industry that has spent years pointing out the disconnect between federal prohibition and state legalization, this report is exhibit A. The federal government doesn’t need to legalize cannabis to benefit from knowing exactly how much money it’s making for state governments.

What This Data Means for the Legal Cannabis Market Going Forward

The bigger lesson in this year’s report isn’t the $3.55 billion headline number, as impressive as it is. It’s the fact that tax design matters just as much as legalization itself.

California proved that a tax structure can actively work against a legal market if it’s not calibrated correctly. Alaska and Washington show there’s more than one way to structure a tax that actually collects meaningful revenue. Minnesota and Delaware demonstrate what rapid, healthy market growth looks like when licensing keeps pace with demand.

For states still building out their cannabis programs, or considering entering the market, the lesson is straightforward: revenue maximization and legal-market survival aren’t automatically the same goal. Set rates too high, and the unregulated market stays competitive. Set them too low, and lawmakers question whether legalization was worth the trouble.

As more states join the list, and as the ones already collecting cannabis taxes fine-tune their approach, expect this $3.55 billion figure to keep climbing. Just don’t expect federal law to catch up to it anytime soon.

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