Navigating the ever-changing landscape of cannabis tax rates in 2025 can be one of the most challenging—and critical—tasks for operators in the legal marijuana industry. With tax laws varying widely across states and constantly evolving, staying compliant while maximizing profitability is no small feat.
In this comprehensive guide, we’ll break down the state-by-state cannabis tax rates for 2025, provide key insights on emerging tax trends, and share expert strategies to reduce your tax burden. Whether you’re a cultivator in California, a dispensary in Illinois, or a vertically integrated business in Michigan, understanding your state’s tax structure is essential for success.
Why Cannabis Tax Rates Matter More Than Ever in 2025
The cannabis industry continues to grow, but so do compliance complexities. Taxation is one of the biggest financial burdens for cannabis businesses, with effective tax rates reaching up to 70% in some states due to Section 280E of the IRS code.
Key reasons to pay close attention to 2025 cannabis tax rates:
- Maximize profit margins by understanding and managing excise, cultivation, and retail taxes.
- Avoid costly penalties and audits by staying compliant.
- Plan for growth with accurate financial forecasting based on updated tax liabilities.
State-by-State Cannabis Tax Rates in 2025
Below is a breakdown of cannabis excise and sales taxes by state as of 2025. Note that local municipalities may impose additional taxes, and structures vary by business type (retail, cultivation, manufacturing).
Arizona
- Excise Tax: 16% at retail
- Sales Tax: 5.6% state Transaction Privilege Tax (TPT)
- Local Tax: Varies by locality, up to 5.6%
- Notes: Medical cannabis is subject to the 5.6% TPT, plus optional local taxes of 2–3%.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Arizona Department of Revenue.
California
- Excise Tax: 15% of gross receipts from retail sales
- Sales Tax: 7.25% state sales tax, plus local taxes
- Local Tax: Local jurisdictions may impose additional cannabis-specific taxes
- Notes: Cultivation tax was eliminated as of 2023. Effective July 1, 2025, the excise tax rate will increase to 19%.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the California Department of Tax and Fee Administration.
Colorado
- Excise Tax: 15% wholesale (based on Average Market Rate) + 15% retail
- Sales Tax: Recreational marijuana is exempt from the general state sales tax
- Local Tax: Local jurisdictions may impose additional taxes
- Notes: Dual excise tax structure applies at both wholesale and retail levels. As of January 2025, the AMR is $658 per pound of flower.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Colorado Department of Revenue.
Connecticut
- Excise Tax:
- $0.00625 per mg of THC (plant material)
- $0.009 per mg of THC (other products)
- $0.0275 per mg of THC (edibles)
- $0.00625 per mg of THC (plant material)
- Sales Tax: 6.35%
- Local Tax: 3% municipal tax
- Notes: Potency-based tax structure impacts pricing and compliance.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Connecticut Department of Revenue Services.
Delaware
- Excise Tax: 15% at retail
- Sales Tax: No general sales tax in the state
- Notes: Delaware’s structure is designed to discourage illicit sales while generating public revenue.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Delaware Division of Revenue.
Florida
- Status: As of April 2025, Florida allows only medical cannabis
- Sales Tax: Medical cannabis is generally exempt from sales tax
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Florida Department of Revenue.
Illinois
- Excise Tax:
- 10% for cannabis with THC ≤ 35%
- 25% for cannabis with THC > 35%
- 20% for infused products
- 10% for cannabis with THC ≤ 35%
- Sales Tax: 6.25%
- Local Tax: Varies by municipality
- Notes: Illinois uses a tiered, potency-based tax system.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Illinois Department of Revenue.
Kentucky
- Status: As of April 2025, cannabis remains illegal for both recreational and medical use
- Important Notice: For future updates, refer to the Kentucky Department of Revenue.
Maryland
- Excise Tax: 9% on retail sales
- Proposed Change: Governor Wes Moore has proposed increasing this to 15% to offset a state deficit.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Maryland Comptroller’s Office.
Massachusetts
- Excise Tax: 10.75% retail
- Sales Tax: 6.25%
- Local Tax: Up to 3%
- Notes: Total effective tax can reach 20% for retail cannabis.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Massachusetts Department of Revenue.
Michigan
- Excise Tax: 10% retail
- Sales Tax: 6%
- Local Tax: Local governments may apply additional taxes
- Notes: In 2025, Gov. Whitmer proposed closing a cannabis tax loophole to fund infrastructure—status pending.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Michigan Department of Treasury.
Minnesota
- Excise Tax: 10% retail
- Sales Tax: 6.875%
- Local Tax: May include local add-ons
- Notes: Tax structure aims to support legal access while curbing black market sales
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Minnesota Department of Revenue.
New Jersey
- Excise Tax: $1.52/oz (Social Equity Excise Fee)
- Sales Tax: 6.625%
- Local Tax: Up to 2%
- Notes: Excise fee funds equity initiatives targeting communities harmed by past drug laws.
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the New Jersey Division of Taxation.
New York
- Excise Tax: 13% retail
- THC-Based Tax:
- $0.005/mg (flower)
- $0.008/mg (concentrates)
- $0.03/mg (edibles)
- $0.005/mg (flower)
- Notes: One of the most complex cannabis tax frameworks in the country, with a focus on potency
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the New York State Department of Taxation and Finance.
Ohio
- Excise Tax: 10% retail
- Sales Tax: 5.75% state tax plus local tax (varies)
- Notes: Recreational sales expected to begin in 2025 after 2023 voter approval
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Ohio Department of Taxation.
Oregon
- Excise Tax: 17%
- Local Tax: Up to 3%
- Notes: Oregon has no general sales tax; cannabis excise and local taxes are primary revenue sources
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Oregon Department of Revenue.
Washington
- Excise Tax: 37% retail (one of the highest in the U.S.)
- Sales Tax: 6.5% state + local sales taxes
- Notes: High taxation significantly affects retail prices and requires strong margin planning
- Important Notice: Cannabis tax laws are subject to change. For the most accurate and up-to-date information, consult with a tax professional or refer to the Washington State Department of Revenue.
What Cannabis Operators Need to Know About 280E in 2025
One of the biggest hurdles for U.S. cannabis businesses remains IRS Code Section 280E, which disallows most standard business deductions for companies trafficking Schedule I substances—like cannabis.
What this means in practice:
- You can’t deduct rent, utilities, advertising, or employee salaries (except COGS-related).
- Effective tax rates often exceed 50-70%, especially for retail operations.
- Cost of Goods Sold (COGS) allocation strategies are your biggest weapon.
👉 Working with cannabis-specialized accountants like GreenGrowth CPAs can help you legally maximize deductions and reduce your 280E exposure.
How to Minimize Cannabis Tax Liability in 2025
Smart cannabis tax planning goes beyond knowing your rates. Here are proactive steps to improve your financial outcome:
Separate Entities
Consider separating your operations (e.g., real estate, intellectual property) into different entities to limit 280E impact.
Optimize COGS Allocation
Correctly allocating indirect costs into COGS can legally reduce your taxable income. Our experts can guide you on IRS-compliant methods.
Track Inventory Accurately
Inventory tracking tools not only help with compliance but also support accurate COGS reporting.
Stay Compliant with Local Tax Laws
Many audits are triggered by local discrepancies. Keep thorough records for every jurisdiction you operate in.
Frequently Asked Questions: Cannabis Tax Rates 2025
What’s the average cannabis tax rate in the U.S. in 2025?
Rates vary by state, but combined taxes (excise + sales + local) often range from 20% to over 40%.
What’s the highest cannabis tax rate in 2025?
Washington State leads with a 37% excise tax, plus state/local sales taxes.
Can cannabis businesses deduct expenses in 2025?
Only COGS-related expenses are deductible under Section 280E. Most other operating expenses are not.
Are there any states with no cannabis excise tax?
Medical marijuana programs in some states (e.g., Michigan) have reduced or no excise tax, but recreational use typically incurs multiple layers of taxation.
How often do cannabis tax laws change?
Annually at a minimum. Many states update rules mid-year—working with cannabis accountants ensures you’re always compliant.
Final Thoughts: Stay Ahead of Cannabis Tax Changes in 2025
With the cannabis industry becoming more regulated—and more taxed—every year, your tax strategy can make or break your business. Don’t risk noncompliance, overpayment, or audit exposure in 2025.
GreenGrowth CPAs is the trusted partner for cannabis businesses across the U.S., offering specialized cannabis accounting, tax planning, and CFO services tailored to your needs. Our team stays ahead of regulatory changes so you don’t have to.
📢 Need expert tax guidance for your cannabis business?
Schedule a free consultation with GreenGrowth CPAs today and maximize your savings.
