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The 7th in a series of 10 articles for cannabis law report

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Fiscal-Impact Analysis of Cannabis Regulatory Agencies

Legislative Brief Series

I. Introduction

More than a decade after Colorado and Washington launched the first adult-use cannabis markets in January 2014, the fiscal architecture of state cannabis regulation has matured from provisional start-up appropriations into complex, self-sustaining financial systems—though several are now showing signs of structural stress. Legalization states collectively generated more than $24.7 billion in adult-use cannabis tax revenue from the first markets through the end of 2024—with 2024 alone producing over $4.4 billion, the highest single-year total ever recorded.¹ In 2024, legal cannabis sales across all programs (adult-use and medical combined) totaled approximately $30.1 billion nationwide.² Yet aggregate revenue figures obscure significant variation in how states structure their cannabis regulatory agencies, fund their operations, allocate tax proceeds, and manage fiscal stress when market conditions shift. Moreover, the national picture has changed in 2025: according to Whitney Economics, 2025 represents the first year of overall year-on-year decline in total U.S. legal cannabis revenues, with collections falling to approximately $29.1–$29.6 billion, as 23 states saw sales declines, even as newer markets like New York, Ohio, New Jersey, and Minnesota posted gains of more than 100 percent.³

Against this backdrop, two landmark federal developments—President Trump’s December 18, 2025 Executive Order directing the Department of Justice to complete the rulemaking process to reschedule cannabis from Schedule I to Schedule III, and Congress’s November 2025 redefinition of legal hemp to close the “hemp loophole”—have reshaped the fiscal outlook for state cannabis regulatory systems in ways that are still being assessed.⁴ Rescheduling, expected to be finalized in the first half of 2026, would remove state-licensed cannabis operators from the scope of Internal Revenue Code Section 280E, materially altering their federal tax burdens and cash flows.⁵ The hemp redefinition, effective November 2026, may close a significant source of tax arbitrage that has been draining revenue from licensed cannabis markets in multiple states.⁶

This brief analyzes the fiscal architecture of cannabis regulatory agencies across the leading market states, examines the principal funding models and their structural vulnerabilities, reviews how tax revenues are allocated by statute, and identifies the emerging fiscal challenges—illicit market competition, fee fund solvency, tax rate policy shifts, new market entrants, and federal rescheduling—that legislatures and oversight bodies should monitor.

II. The Scale of State Cannabis Fiscal Systems

A. Aggregate Revenue Picture

Since adult-use sales commenced in 2014, legalization states have generated a combined total of more than $24.7 billion in adult-use cannabis tax revenues through the end of 2024.⁷ In 2024, four states each generated more than $500 million in adult-use cannabis taxes, and one—California—exceeded $1 billion for the year.⁸ The leading generators of adult-use tax revenue in calendar year 2024 were California (over $1 billion), Illinois ($578 million), Michigan ($524 million), and Washington ($516 million).⁹

Total U.S. legal cannabis sales—encompassing both adult-use and medical—reached approximately $30.1 billion in 2024 according to Whitney Economics, but preliminary 2025 data indicates the market contracted to approximately $29.1–$29.6 billion, the first year-on-year decline since legal markets launched.¹⁰ Industry analysts cite oversupply, price compression, 280E-driven operator financial distress, and the continued draw of the illicit market as primary drivers of the decline in mature markets, partially offset by expansion in newer markets.¹¹

B. The Colorado Precedent

Colorado, the earliest adult-use market, provides the most longitudinal fiscal data of any state. Regulated marijuana sales in Colorado surpassed $1 billion in calendar year 2025, generating approximately $200 million in tax and fee revenue.¹² Colorado’s three-tier tax structure consists of: (1) a special sales tax on retail marijuana (15% excise), which accounts for the majority of annual revenues; (2) a wholesale excise tax on retail marijuana transfers earmarked by statute for K-12 school capital construction; and (3) the state’s standard 2.9% sales tax applicable to medical marijuana.¹³ For FY 2022-23, Colorado collected approximately $285.4 million from those three tax streams combined.¹⁴ Colorado’s Marijuana Enforcement Division (MED), housed within the Department of Revenue, has an annual operating budget in the range of $25–26 million, funded through the Marijuana Cash Fund, which receives revenues from marijuana business fees.¹⁵

The Colorado model is notable for its tight linkage between regulatory agency funding and licensing fees rather than tax revenue. The MED’s Marijuana Cash Fund receives fee revenues directly, insulating regulatory operations from the volatility of excise tax fluctuations but creating vulnerability when fee revenue declines with market consolidation or license reductions.

C. California: The Largest Market, Highest Regulatory Cost, and the 2025 Tax Crisis

California’s Department of Cannabis Control (DCC) is the largest and most expensive cannabis regulatory agency in the country. The Governor’s FY 2024-25 budget proposed a total of $171 million for DCC support, primarily drawn from the Cannabis Control Fund, which receives revenues largely from cannabis licensing fees.¹⁶ Within that budget, $8.2 million was allocated for laboratory services, legal, and administrative hearing costs—including $2.7 million annually for DOJ legal services and $4.1 million annually for Office of Administrative Hearings costs.¹⁷

California’s Cannabis Control Fund condition statements show a declining beginning balance trajectory: $154.3 million in FY 2023-24, $127.7 million in FY 2024-25, and a projected $82.4 million in FY 2025-26, reflecting expenditures consistently exceeding current-year fee revenues.¹⁸ Licensing fee revenues for FY 2024-25 are estimated at approximately $121.7 million, against estimated expenditures that continue to draw down the fund balance.¹⁹

California’s licensed retail footprint has flatlined at roughly 1,225 active stores since mid-2023, as 57 percent of the state’s cities and counties still prohibit cannabis dispensaries.²⁰ A DCC-commissioned ERA Economics report released in March 2025 estimated that total California cannabis consumption was approximately 3.8 million pounds annually, with only 1.4 million pounds sold from the licensed market—the majority of cannabis sold in California remaining untaxed.²¹

The state’s excise tax—set at 15 percent through FY 2024-25—increased to 19 percent on July 1, 2025 pursuant to the automatic rate adjustment mechanism enacted in AB 195 (2022), which required the CDTFA to calibrate the excise rate to offset revenues lost when the cultivation tax was eliminated.²² The increase to 19 percent—representing a 26.7 percent increase from the prior rate—came at a moment of market stress, with the excise tax revenue already declining to $593.6 million in calendar year 2024 from a peak of over $800 million in FY 2021-22.²³ Industry advocates warned that combined with state and local sales taxes, total tax burdens on cannabis could reach 48 percent in some jurisdictions.²⁴

In response, Governor Newsom signed Assembly Bill 564 on September 22, 2025, rolling the excise tax back from 19 percent to 15 percent effective October 1, 2025, with the 15 percent rate locked in through June 30, 2028.²⁵ The bill passed the Assembly 74-0 and the Senate with broad bipartisan support.²⁶ AB 564 also required the DCC, in consultation with the CDTFA and the Legislative Analyst’s Office, to submit a report by October 1, 2027, analyzing the current and future effect of the Cannabis Tax Law on the regulated market and recommending options for reform.²⁷ The LAO had previously projected cannabis tax revenues for the state at $653 million for FY 2024-25—approximately $42 million below the budget package assumption—reflecting continued market maturation pressures and illicit market competition.²⁸

D. Illinois: Record Sales, Widening Equity Gap, and the Metrc Transition

Illinois generated more than $490 million in sales tax revenue from cannabis dispensaries in calendar year 2024, from a record-setting $2 billion in combined adult-use and medical cannabis sales—the fourth consecutive year of record-breaking growth.²⁹ Adult-use cannabis sales alone reached $1.722 billion, with more than 56.3 million cannabis products sold statewide.³⁰ Illinois has 244 adult-use dispensaries operating statewide as of early 2025, including 134 social equity dispensaries.³¹

However, fiscal year 2025 data tells a more complicated story. Dispensary taxes generated $438 million for FY 2025—a $52 million decline from the $490 million reported for calendar year 2024—reflecting both price compression and the saturation of a market with among the highest tax rates in the nation.³² The number of cannabis items sold actually increased to 58 million items in 2025, even as revenue declined, reflecting lower per-unit prices.³³ The average price per ounce of cannabis in Illinois has fallen from over $400 at market launch in 2020 to approximately $167 by 2025.³⁴

The state’s cannabis regulatory cost structure is distributed across multiple agencies. For FY 2025, the Illinois Department of Financial and Professional Regulation (IDFPR) was appropriated $26,220,000 for staff and operational costs for Adult-Use Cannabis and Compassionate Use programs.³⁵ The Illinois Department of Agriculture (IDOA) collected approximately $10.2 million in licensing and other fees in FY 2024.³⁶

A material development in Illinois’s cannabis regulatory infrastructure occurred in July 2025: the state transitioned from its prior BioTrack seed-to-sale system to Metrc, concluding the rollout in June 2025.³⁷ This transition—discussed in detail in the Cannabis Regulatory Audits series—also revealed a previously unknown data quality issue: the prior BioTrack system had been recording non-discounted (pre-promotion) prices rather than actual prices paid, meaning that some historical revenue figures may have reflected artificially elevated sales values.³⁸ IDFPR clarified that actual sales tax remittances, reported directly to the Illinois Department of Revenue, were accurate and not affected by the seed-to-sale data quality issue.³⁹

Despite record sales headlines, a state-commissioned disparity study released in 2024 found that social equity applicants accounted for 65 percent of licenses granted in 2023 but only 11.9 percent of all cannabis sales—reflecting a persistent structural disadvantage that the fiscal architecture has failed to fully address.⁴⁰

Illinois’s tax structure is among the most complex in the country, with rates tiered by THC potency: 10% for cannabis with 35% or less THC content, 20% for cannabis-infused products, and 25% for cannabis with more than 35% THC content.⁴¹ Combined with state and local sales taxes, a high-potency product purchased in Chicago can face an effective combined tax rate of up to 41.25%.⁴² This has created measurable market pressure, with the average price per ounce declining even as total items sold increased—suggesting consumers are trading down in response to tax-inclusive pricing.⁴³

E. Michigan: Volume-Driven Revenue, New Wholesale Tax, and Constitutional Challenge

Michigan collected more than $331 million from the Marihuana Regulation Fund in its 2024 state fiscal year, drawn from the state’s 10% adult-use marijuana excise tax and associated licensing fees.⁴⁴ Of that total, nearly $100 million was distributed to 302 municipalities, counties, and tribes; more than $116 million was transferred to the School Aid Fund for K-12 education; and another $116 million was directed to the Michigan Transportation Fund.⁴⁵

Governor Whitmer signed the Comprehensive Road Funding Tax Act (House Bill 4951) into law on October 7, 2025, imposing a new 24% excise tax on all wholesale adult-use cannabis transactions effective January 1, 2026.⁴⁶ The revenue from the wholesale tax—projected at approximately $420.7 million annually—is dedicated primarily to the Neighborhood Road Fund for local roads and bridges, with small allocations to a new Comprehensive Road Funding Fund.⁴⁷ The legislation passed the Senate on a narrow 19-17 vote.⁴⁸

The new wholesale tax has created significant compliance complexity and industry concern. Michigan’s effective total cannabis tax burden—24% at wholesale, 10% at retail, plus 6% sales tax—now ranks among the highest of any legal state.⁴⁹ Industry analysts have noted that the statutory “wholesale price” definition—which includes all taxes, fees, and charges reflected on the invoice—creates a recursive calculation that could result in an effective wholesale tax rate closer to 32% rather than the stated 24%, pushing the total estimated tax burden to approximately 51% when all layers are combined.⁵⁰

The Michigan Cannabis Industry Association filed a constitutional challenge to the wholesale tax in the Michigan Court of Claims on October 7, 2025, arguing that the Legislature failed to obtain the three-fourths supermajority required by the Michigan Constitution to amend a citizen-initiated statute.⁵¹ The Court of Claims denied a motion to block the tax from taking effect on January 1, 2026; the constitutional litigation remained pending as of early 2026.⁵² Michigan Department of Treasury guidance on the first quarterly filing and payment timeline was still being developed as of December 31, 2025.⁵³

F. Washington: High-Tax, Mature Market Under Revenue Pressure and Restructuring Proposal

Washington State’s cannabis market operates under a 37% excise tax on all adult-use retail sales—one of the highest excise rates in the country.⁵⁴ The WSLCB’s Dedicated Cannabis Account collected $458 million in excise tax revenue and fees in fiscal year 2024.⁵⁵ Washington’s cannabis market peaked at $1.467 billion in retail sales in calendar year 2021 and declined to $1.197 billion in 2024, with the decline attributed to falling prices rather than declining sales volume.⁵⁶ For 2025, the state projected sales of approximately $1.1 billion to $1.2 billion.⁵⁷

The WSLCB faces active legislative proposals in its 2026 session. The most significant structural proposal was introduced by Sen. Curtis King on January 22, 2026, which would partition the agency into two separate five-member boards—the Washington State Cannabis Board and the Washington State Liquor Board—plus a regulatory agency under an appointed director.⁵⁸ Additionally, legislation introduced by Rep. Timm Ormsby would increase annual cannabis licensing and renewal fees by $400 per license while instituting a recurring annual increase tied to the Consumer Price Index—a direct response to the WSLCB’s strained operating budget.⁵⁹ The Washington State Senate also considered legislation that would allow local jurisdictions to levy their own additional cannabis excise taxes, though that bill was pulled from its scheduled hearing in early February 2026.⁶⁰ Separately, Sen. Rebecca Saldaña introduced legislation in January 2026 that would “re-envision the cannabis product excise taxation scheme” and potentially eliminate Washington’s flat 37% excise rate in favor of a structure with more specific product categories.⁶¹

G. New York: Rapid Growth, Community Reinvestment, and Structural Reforms

New York’s adult-use market is growing rapidly from a 2022 launch. The OCM reported that combined adult-use and medical cannabis sales reached approximately $1.6 billion year-to-date through 2025, up from $1.0 billion in 2024 and $317 million in 2023.⁶² Since the passage of the Marihuana Regulation and Taxation Act, cumulative adult-use retail sales have surpassed $2.5 billion.⁶³ New York cannabis tax revenues rose from approximately $42.3 million in FY 2023-24 to approximately $161.8 million in a subsequent fiscal year.⁶⁴

New York’s statutory distribution formula under the MRTA directs cannabis tax revenue into the Cannabis Revenue Fund, from which 40% is allocated to the Community Grants Reinvestment Fund (CGRF) for grant awards to communities disproportionately impacted by prior drug enforcement.⁶⁵ In October 2025, the OCM and the Cannabis Advisory Board announced the first CGRF awards, distributing $5 million to 50 youth-focused nonprofit organizations across the state.⁶⁶ Each of the 50 recipient organizations received $100,000; over 82% of the grants were awarded to organizations serving ZIP codes designated as Communities Disproportionately Impacted (CDI) by prior cannabis prohibition.⁶⁷ Applications for the second round of CGRF grants were anticipated to open in late 2025 or early 2026.⁶⁸

In the 2025-2026 legislative session, New York Senate Bill S1137 was introduced to increase the permissible funding level for the Social Equity Cannabis Investment Fund from $50 million to $300 million—signaling legislative interest in expanding the financial infrastructure for equity licensees despite the DASNY-Chicago Atlantic procurement controversy.⁶⁹

H. New Markets: Minnesota, Delaware, and Ohio

Three new adult-use markets launched or substantially expanded in 2025, adding to the national revenue picture. Minnesota issued its first cannabis business license on June 18, 2025 and launched retail sales statewide in September 2025, with early sales led by operators transitioning from the state’s medical program.⁷⁰ By the end of 2025, Minnesota had issued 118 cannabis business licenses, with 55% going to social equity applicants—a notably strong equity rate in the market’s first year.⁷¹ The state reported $122.5 million in combined adult-use and medical cannabis sales across more than 1.2 million transactions in the 12 months ending December 2025.⁷² Minnesota’s adult-use cannabis sales are taxed at 15% gross receipts in addition to state and local sales taxes.⁷³

Delaware launched adult-use retail sales on August 1, 2025, becoming the second state to open its adult-use market that year.⁷⁴ Delaware charges a 15% sales tax on recreational marijuana sales, directing 7% of revenues to a Justice Reinvestment Fund for quality-of-life projects in cannabis-impacted communities.⁷⁵ Ohio’s adult-use market, which launched adult-use sales in 2024, reported year-one adult-use sales of approximately $702 million under the state’s 10% excise tax.⁷⁶

III. Regulatory Agency Funding Models: Comparative Analysis

A. Fee-Funded Agencies

The predominant model across legal states is a self-funded regulatory agency whose operating budget is drawn from a dedicated licensing fee fund, with excise tax revenues flowing separately to legislative appropriation for general government priorities. California’s Cannabis Control Fund, Colorado’s Marijuana Cash Fund, and Michigan’s Marihuana Regulation Fund all follow this basic structure.

The fee-funded model has the virtue of insulating core regulatory operations from the general appropriations process and ensuring that industry pays for its own regulation. Its structural vulnerability is that fee revenues are directly tied to the number and size of licensed entities. As markets mature and consolidation occurs—licensees consolidate, smaller operators exit, and total license counts decline—fee revenues fall while regulatory demand may not fall proportionally. California’s declining Cannabis Control Fund balance (from $154.3 million in FY 2023-24 to a projected $82.4 million in FY 2025-26) illustrates this dynamic.⁷⁷ Alaska’s program, by contrast, operates at very low regulatory cost—approximately $1.8 million annually—reflecting both the small size of its market and a deliberately lean agency structure.⁷⁸

B. Tax-Revenue-Funded Agencies

Some jurisdictions draw regulatory agency funding directly from cannabis excise tax revenues rather than or in addition to licensing fees. Illinois’s Cannabis Regulation Fund is the clearest example: it receives both tax revenues and licensing fees, then distributes them by statutory formula to implementing agencies and community reinvestment programs. The advantage of this model is revenue stability tied to market growth; the disadvantage is that agencies compete with high-priority public programs for shares of a fund that legislators have multiple claims on. Illinois’s FY 2025 tax collections of $438 million—below the headline $490 million 2024 figure—illustrate how this model can produce revenue surprises that reverberate through agency appropriations and community reinvestment programs simultaneously.⁷⁹

C. Application Fee Structures

Application fees vary substantially across states and license types. The Marijuana Policy Project survey of adult-use states found application fees ranging from $100 to $6,000 at the state level, while licensing fees range from $9 per plant for small grows in Maine to as high as $850,000 for large Illinois medical cannabis growers transitioning to adult-use.⁸⁰ These wide variations reflect both market conditions and deliberate policy choices about barrier to entry for equity applicants.

IV. Tax Rate Structures and Revenue Allocation

*Sources: State agency reports cited throughout; Motley Fool state-by-state analysis (Jan. 2026); Marijuana Policy Project; NORML.*⁸¹

V. Statutory Revenue Allocation: Community Reinvestment and Public Programs

A defining characteristic of the post-2018 legalization wave is the statutory embedding of community reinvestment obligations within cannabis tax distribution formulas. Unlike early legalization states (Colorado, Washington), which directed revenues primarily to education, roads, and general funds, later states have incorporated mandatory equity allocations:

Illinois directs 25% of Cannabis Regulation Fund revenues to Restore, Reinvest, Renew (R3) grants for economically distressed communities disproportionately impacted by drug criminalization, plus 2% to the Drug Treatment Fund for public health programming.⁸²

New York requires 40% of net cannabis revenue to flow to the Community Grants Reinvestment Fund for community organizations serving youth in communities disproportionately impacted by prior prohibition, with the first $5 million in awards made to 50 organizations in October 2025.⁸³

Delaware, which launched recreational sales in August 2025, directs 7% of cannabis tax revenue to the Justice Reinvestment Fund for quality-of-life projects in cannabis-impacted communities.⁸⁴

Massachusetts operates the Cannabis Social Equity Trust Fund (CSETF), which awarded $26.5 million in FY 2025 grants to 181 social equity businesses across the Commonwealth, with grants ranging from $25,000 to $500,000.⁸⁵

Colorado directs all retail marijuana excise tax revenues to the Public School Capital Construction Assistance Fund.⁸⁶

Michigan’s Marihuana Regulation Fund distributes approximately one-third of revenues each to local municipalities, the School Aid Fund, and the Transportation Fund; the new 24% wholesale tax directs its revenues to the Neighborhood Road Fund for infrastructure.⁸⁷

Minnesota’s distribution formula was revised by 2025 legislation that repealed the requirement to share 20% of cannabis tax revenue with local governments, consolidating revenue collection at the state level.⁸⁸

VI. Fiscal Stress Factors

A. Illicit Market Competition

The most pervasive fiscal threat to cannabis regulatory agencies is the illicit market. California’s DCC-commissioned report estimates unlicensed cannabis represents approximately 63% of what’s consumed in California and 89% of what’s produced in the state annually—a structural imbalance that enforcement alone cannot resolve.⁸⁹ In New York, illicit storefronts have been a major enforcement challenge, prompting the expanded padlock authority enacted in the FY 2025 state budget and the enforcement campaigns detailed in the compliance audit series.⁹⁰ Governor Pritzker of Illinois specifically highlighted the threat from unregulated intoxicating hemp-derived products as “undermining” the licensed market, framing them as directly undercutting licensed operators who pay full taxes and undergo rigorous product testing.⁹¹

The November 2025 federal Farm Bill provision redefining hemp to close the “hemp loophole”—effective November 2026—represents a potentially significant fiscal development for licensed markets, as it would eliminate the category of products that has most directly competed with licensed cannabis retailers on price without bearing their regulatory and tax costs. Several states, including Indiana, have already enacted parallel state-level hemp bans ahead of the federal effective date.⁹²

B. High Tax Rates and Interstate Market Leakage

High state cannabis tax rates accelerate consumer migration to lower-tax neighboring-state markets or to the illicit market. California’s experience is the most fully documented: the $600 million excise tax revenue collected in 2024 fell short of the $670 million annual benchmark that would have avoided the July 2025 rate increase under AB 195’s trigger mechanism.⁹³ Illinois’s high THC-tiered rate structure—producing combined tax rates of up to 41.25% in Chicago—has contributed to revenue growth plateauing as consumers near the Michigan and Missouri borders make cross-border purchases.⁹⁴ Michigan’s new 24% wholesale tax, stacked on an already competitive 10% retail excise, risks accelerating the same dynamic: a Republican senator opposed to the bill predicted it would not generate “anywhere near” the projected $420 million in annual revenue.⁹⁵

California’s AB 564 excise tax rollback—driven by the recognition that a 19% rate was accelerating market leakage rather than generating incremental revenue—represents the clearest case of a state acknowledging the “revenue paradox”: that over-taxation can yield lower total collections when it drives consumers out of the taxable licensed market. The experience of California, Illinois, Michigan, and Washington all support the economic literature finding that states with high taxes are “lagging behind other states in terms of the percentage of legal participation.”⁹⁶

C. Agency Startup and Transition Costs

Cannabis regulatory agencies consistently face elevated startup and transition costs that exceed steady-state operating budgets. California’s DCC has carried successive years of fund balance drawdown as it transitions from provisional to annual licenses, processes a large volume of administrative hearing cases, and builds out laboratory testing infrastructure.⁹⁷ Michigan’s CRA requested legislative authority to build a $2.8 million Cannabis Reference Laboratory, requiring a statutory amendment to permit the agency to possess cannabis at its testing facility.⁹⁸ Illinois completed construction of its state cannabis testing lab, with the new Metrc seed-to-sale system rollout in July 2025 representing another significant one-time transition cost.⁹⁹

D. Federal Rescheduling and Fiscal Implications

President Trump’s December 18, 2025 Executive Order directing the DOJ to complete the rulemaking process to reschedule cannabis from Schedule I to Schedule III represents the most significant potential federal fiscal development since cannabis legalization began.¹⁰⁰ The finalization of the rescheduling rule—expected in the first half of 2026—would remove cannabis operators from the scope of IRC Section 280E, which has subjected state-licensed cannabis businesses to effective federal tax rates of 70% or more by prohibiting deductions for ordinary business expenses including rent, payroll, and marketing.¹⁰¹

Industry analysis suggests the typical dispensary could save approximately $268,000 per year in federal taxes from 280E relief, with higher-volume stores seeing annual relief closer to $800,000 per location.¹⁰² At the industry level, removing 280E could unlock $1.6 to $2.2 billion in incremental after-tax cash flow annually.¹⁰³

For state fiscal systems, rescheduling creates both opportunities and risks. The opportunity is that improved operator profitability could stabilize the licensed market and increase the base of businesses paying licensing fees to state regulatory agencies. The risk is that the timing of 280E relief remains uncertain—cannabis remained Schedule I for all of 2025, meaning 280E applied for the full tax year regardless of when the final rescheduling rule is published in 2026—and IRS guidance on retroactivity and the deferred rescheduling approach may affect when relief materializes.¹⁰⁴

States should also evaluate whether their own tax rate structures remain competitive in a post-280E environment. If operators can deduct ordinary business expenses for federal purposes for the first time, states that have imposed high excise tax rates to compensate for the 280E-driven market distortion may find their competitive position unchanged or worsened if the 280E relief primarily accrues to multi-state operators with greater institutional capital access.¹⁰⁵ Several states—including New Jersey—have already decoupled from the federal 280E rule for state income tax purposes, allowing cannabis businesses to deduct ordinary business expenses for state income tax regardless of federal scheduling status.¹⁰⁶

In direct counterpoint to rescheduling-related 280E relief, the 119th Congress contains the No Deductions for Marijuana Businesses Act, with 11 House sponsors and 2 Senate sponsors, which would explicitly preserve Section 280E regardless of scheduling status—signaling that not all federal legislators support the tax relief implications of rescheduling.¹⁰⁷

VII. Oversight and Accountability Frameworks

Cannabis regulatory agencies are subject to multiple layers of fiscal oversight:

Legislative Appropriations and Annual Reports. Nearly all cannabis regulatory statutes require agencies to submit annual reports to the legislature detailing licensing activity, tax revenue, fee collections, expenditures, and enforcement actions. Illinois’s CRTA requires reporting by IDFPR, IDOA, IDOR, and the Cannabis Regulation Oversight Office; IDFPR published its FY 2025 annual cannabis report on September 30, 2025.¹⁰⁸ New York’s OCM submits an annual report to the Cannabis Control Board and the legislature; the 2025 Annual Report was released December 31, 2025.¹⁰⁹ California’s DCC submits to the LAO and the Legislature for each budget cycle.¹¹⁰

State Audit and Inspector General Review. The California State Auditor has conducted multiple performance audits of DCC, including a February 2025 report examining the Local Jurisdiction Assistance Grant Program and a November 2025 follow-up on provisional license transition progress.¹¹¹ These audits identified specific instances of inappropriate grant expenditures and inadequate oversight of local grantees, resulting in the return of $4.1 million in unspent or ineligible funds.¹¹²

Independent Research Investment. Several states have embedded research funding mandates into their cannabis statutes. Arizona requires $5 million annually for five years from the medical marijuana fund for clinical trial grants. Illinois earmarks 2% of cannabis tax revenue for research-related activities by the Department of Human Services. Michigan provided the CRA $20 million annually for two years for research on cannabis efficacy through contracts with the University of Michigan and Wayne State University. California’s DCC awarded nearly $30 million in competitive research grants to nine academic institutions on December 26, 2025, for 22 research projects, bringing cumulative research grant funding to approximately $80 million since 2020.¹¹³

VIII. Conclusion and Legislative Recommendations

The fiscal maturation of state cannabis regulatory systems over a decade of operation reveals several durable structural challenges that legislatures and oversight bodies should address:

First, the “revenue paradox” of over-taxation is now empirically established across multiple jurisdictions. California’s excise tax rollback from 19% to 15%, the opposition to Michigan’s new 24% wholesale tax, Illinois’s plateauing revenue at high excise rates, and Washington’s declining revenue under a 37% rate all point to the same underlying dynamic: tax rates set above market-clearing levels divert consumers to the illicit market, reducing both tax collections and the base of licensed entities paying fees to regulatory agencies. Legislators should require regular market-competitiveness assessments before implementing excise tax increases above established thresholds, including mandatory analysis of cross-border leakage and illicit market share.

Second, fee-fund solvency in states with declining license counts requires proactive fund management policies, including statutory minimum reserve requirements and authorization for agencies to adjust fee schedules to maintain fund balance within specified ranges without requiring individual legislative action for each adjustment. California’s projecting fund balance of $82.4 million by FY 2025-26—down from $154.3 million two years prior—illustrates the compounding effect of expenditures outpacing fee revenues as the licensed market consolidates.

Third, statutory tax allocation formulas should be designed with downside-risk scenarios in mind. Illinois’s FY 2025 tax collections of $438 million—falling below the headline $490 million 2024 figure—illustrate how formula-driven distributions to community reinvestment, treatment programs, and agency operations can all be stressed simultaneously if overall revenues decline. Formulas that lock in percentage distributions without floor amounts may trigger cascading agency funding shortfalls.

Fourth, federal Schedule III rescheduling, if finalized in 2026, will require states to reassess their tax rate structures and equity program designs. The elimination of 280E burdens would increase operator profitability but will not directly alter state excise tax structures. States should evaluate whether their own tax rate structures remain competitive in a post-280E environment and whether anticipated increases in multi-state operator access to capital will require updated market concentration rules or fee structures. The No Deductions for Marijuana Businesses Act’s congressional support signals that 280E relief may face legislative challenges even after rescheduling.

Fifth, the November 2025 hemp loophole closure, effective November 2026, represents a potential structural benefit to licensed cannabis markets that have lost market share to untaxed, unregulated hemp-derived THC products. States should model the anticipated market reabsorption effects of the hemp loophole closure on licensed market revenue projections and adjust fee fund forecasts accordingly.

Sixth, new market states (Minnesota, Delaware, Ohio) should adopt fee-fund reserve requirements from the outset, rather than discovering fund balance vulnerability after years of drawdown. Colorado and Michigan’s fee-fund model provides a structural template; the early experience of these states with regulatory cost underestimation should inform reserve calibration in newer markets.

ENDNOTES

1. Marijuana Policy Project, States Collected Nearly $25 Billion from Legal Adult-Use Cannabis Sales (press release, May 2025), https://www.mpp.org/news/press/states-collected-nearly-$25-billion-from-legal-adult-use-cannabis-sales/ (reporting $24.7 billion cumulative and $4.4 billion in 2024, “the most revenue generated by cannabis sales in a single year”).
2. Cannabis Regulation, City of Los Angeles, 2024 US Cannabis Sales, https://cannabis.lacity.gov/articles/2024-us-cannabis-sales (citing Whitney Economics; reporting $30.1 billion in total legal U.S. cannabis sales in 2024).
3. Cannabis Market 2026: Retail, Revenue, and What Comes Next, The Cannabis Business Directory (Feb. 2026), https://thecbd.co/cannabis-market-2026/ (citing Whitney Economics: 2025 is first year-on-year decline, revenues approximately $29.1–$29.6 billion; 23 states saw sales declines; newer markets like New York, Ohio, New Jersey, and Minnesota posted 100%+ gains).
4. Congressional Research Service, Legal Consequences of Rescheduling Marijuana, LSB11105 (2025), https://www.congress.gov/crs-product/LSB11105 (noting Trump’s December 18, 2025 Executive Order directing DOJ to complete rescheduling rulemaking; and November 2025 hemp THC redefinition).
5. AAFCPAs, Executive Order to Reschedule Cannabis: What It Means for IRC 280E (Dec. 19, 2025), https://www.aafcpa.com/2025/12/19/executive-order-to-reschedule-cannabis-what-it-means-for-irc-280e/ (noting DOJ finalization expected in first half of 2026; 280E removal upon finalization).
6. MJBizDaily, Is 280E Tax Relief Immediate? Your Top Marijuana Rescheduling Questions (Jan. 2, 2026), https://mjbizdaily.com/news/is-280e-tax-relief-immediate-your-top-marijuana-rescheduling-questions-answered/613716/ (discussing hemp loophole closure effective November 2026 from Continuing Appropriations and Extensions Act of 2026).
7. Marijuana Policy Project, supra note 1.
8. Id. (“seven states collected over $200 million in adult-use cannabis taxes (four of those states generated over $500 million in revenue, one of which collected over $1 billion)”).
9. NORML, Analysis: Legal Cannabis Markets Have Generated $25 Billion in State Tax Revenue (June 5, 2025), https://norml.org/news/2025/06/05/analysis-legal-cannabis-markets-have-generated-25-billion-in-state-tax-revenue/ (reporting 2024 leaders: California over $1 billion; Illinois $578 million; Michigan $524 million; Washington $516 million).
10. Cannabis Market 2026, The Cannabis Business Directory, supra note 3.
11. Id.; Whitney Economics, 2024 U.S. Cannabis Business Conditions Survey (noting only 27% of U.S. cannabis operators reported profitability in 2024, compared to 65% of all U.S. small businesses; and approximately $4.2 billion in delinquent payments in 2024), cited in California Bill to Freeze Cannabis Excise Tax, Cannabis Business Times (May 2025), https://www.cannabisbusinesstimes.com/us-states/california/news/15745067/california-bill-to-freeze-cannabis-excise-tax-breezes-60-through-another-committee.
12. Colorado Dep’t of Revenue, Marijuana Sales Near $1B, Raising Almost $200M of Tax Revenue in 2025 (Dec. 22, 2025), https://tax.colorado.gov/press-release/marijuana-sales-near-1b-raising-almost-200m-of-tax-revenue-in-2025.
13. Colorado General Assembly, Joint Budget Committee Staff, FY 2024-25 Marijuana Policy Overview Budget Briefing 1–3 (2023), https://content.leg.colorado.gov/sites/default/files/fy2024_-25marbrf.pdf (describing three-tier tax structure).
14. Id. (“In FY 2022-23, the state collected a total of approximately $285.4 million from those three taxes, with the special sales tax accounting for $219.9 million.”).
15. Marijuana Policy Project, Financial Impact of Legalizing and Regulating Cannabis for Adult Use, https://www.mpp.org/issues/legalization/financial-information-on-states-with-adult-use-legalization/ (“The Marijuana Enforcement Division’s ongoing annual budget for FY 2020-21 is $25,708,852.”).
16. California Legislative Analyst’s Office, The 2024-25 Budget: Department of Cannabis Control—Legal and Administrative Hearing Costs, https://lao.ca.gov/Publications/Report/4869 (“The Governor proposes a total of $171 million for the support of DCC in 2024-25.”).
17. Id. (“$2.7 million for DOJ costs and $4.1 million for OAH costs annually in 2024-25 through 2026-27.”).
18. California Dep’t of Finance, Fund Condition Statement: Cannabis Control Fund (3288), Governor’s Budget 2025-26, https://ebudget.ca.gov/2025-26/pdf/Enacted/GovernorsBudget/1000/1115FCS.pdf (showing beginning balances of $154,304K in FY 2023-24, $127,680K in FY 2024-25, and $82,421K in FY 2025-26).
19. Id.
20. Cal NORML, Cal NORML Sponsors AB 564 – Stop 2025 Cannabis Tax Increase, https://www.canorml.org/stophighertaxes/ (noting licensed retail footprint flatlined at roughly 1,225 active stores since mid-2023; 57% of state’s cities and counties still prohibit dispensaries).
21. Id. (citing March 2025 DCC-commissioned ERA Economics report: total California cannabis consumption 3.8 million pounds, only 1.4 million pounds from licensed market; 11.4 million pounds unregulated total production).
22. California CDTFA, New Cannabis Excise Tax Rate Effective July 1, 2025, https://cdtfa.ca.gov/formspubs/l979.pdf (noting 19% rate effective July 1, 2025 pursuant to AB 195 (2022) rate adjustment mechanism).
23. Cal NORML, supra note 20 (noting total excise tax collected in CY 2024 was $593.6 million, down from $626 million in CY 2023; peaked FY 2021-22 at over $800 million).
24. Id. (noting combined state and local taxes as high as 38–44% pre-rollback; 48% following 19% increase).
25. Cal NORML, WE DID IT! Gov. Newsom Signs AB 564 to Lower CA’s Cannabis Excise Tax Back to 15% on October 1 (Sept. 22, 2025), https://www.canorml.org/rollbackthetax/ (Newsom signed AB 564; 15% rate effective October 1, 2025 through June 30, 2028).
26. AB 564: Cannabis: excise tax: rate increase suspension: report, leginfo.legislature.ca.gov, https://calmatters.digitaldemocracy.org/bills/ca_202520260ab564 (passed Assembly 74-0).
27. Id. (requiring DCC, CDTFA, and LAO report by October 1, 2027 analyzing effect of Cannabis Tax Law on regulated market).
28. California Legislative Analyst’s Office, Cannabis Tax Revenue Update (2024 Q3), https://www.lao.ca.gov/LAOEconTax/Article/Detail/817 (“We currently project cannabis tax revenues of $653 million in 2024-25… $42 million below the budget package assumption.”).
29. Illinois Dep’t of Financial and Professional Regulation, Pritzker Administration Announces Cannabis Sales Exceed $2 Billion Annually (Feb. 6, 2025), https://idfpr.illinois.gov/news/2025/pritzker-admin-announces-cannabis-sales-exceed-2bil-annually.html (reporting $490 million in sales taxes in 2024 from $2 billion in total sales).
30. Id. (adult-use sales of $1.722 billion, 56.3 million products sold, breaking 2023 record by 13%).
31. Id. (244 adult-use dispensaries statewide, including 134 social equity dispensaries).
32. Illinois Cannabis Sales Revenue Falls, Chicago Tribune (Feb. 16, 2026), https://www.chicagotribune.com/2026/02/16/cannabis-sales-illinois/ (noting dispensary taxes generated $438 million for FY 2025, down from $490 million for calendar year 2024; IDFPR spokesperson described agency as “cautiously hopeful” about rescheduling’s impact).
33. Id. (number of cannabis items sold increased to 58 million in 2025 despite revenue decline).
34. Id. (average price per ounce fallen from over $400 in 2020 to approximately $167 by 2025).
35. Illinois Dep’t of Financial and Professional Regulation, 2025 Annual Cannabis Report (Sept. 30, 2025), https://cannabis.illinois.gov/content/dam/soi/en/web/cannabis/documents/media/reports-and-public-presentations/Compiled-Cannabis-Annual-Report-2025.pdf (“For Fiscal Year 2025 the Department was appropriated $26,220,000 for staff and operational costs for the Adult-Use Cannabis & Compassionate Use programs.”).
36. IDFPR, 2024 Annual Cannabis Report (citing $10,181,999 in IDOA licensing and other fees in FY 2024), https://idfpr.illinois.gov/content/dam/soi/en/web/idfpr/forms/auc/compiled-cannabis-annual-report-2024.pdf.
37. Illinois Cannabis Regulation Oversight Office, Sales Figures, https://cannabis.illinois.gov/research-and-data/sales-figures.html (“The State of Illinois went live with a new, state-of-the-art seed-to-sale, track-and-trace data system in July 2025. The new system, Metrc, rolled out across the cannabis industry over several months and concluded in June.”).
38. Id. (noting prior system had “been reporting some pre-discount prices” rather than actual prices paid; Metrc’s sales tracking features “help retailers more accurately and reliably report actual sales, including all discounts and promotions at checkout”).
39. Id. (“Sales receipts, subject to tax and tax collections, reported directly to the Illinois Department of Revenue by retailers were accurate and not impacted by the non-discounted prices.”).
40. Record-Breaking Illinois Pot Sales, NPR Illinois (Feb. 12, 2025), https://www.nprillinois.org/illinois/2025-02-12/record-breaking-illinois-pot-sales-light-up-thriving-cannabis-industry-despite-unregulated-hemp-market (citing 2024 state-commissioned disparity study: social equity applicants 65% of licenses but only 11.9% of all cannabis sales; 38% of adult-use sales at social equity dispensaries by December 2024).
41. Illinois Cannabis, Learn How Cannabis Tax Dollars Are Spent, https://cannabis.illinois.gov/research-and-data/learn-how-cannabis-tax-dollars-are-spent.html (describing tiered rate structure of 10%/20%/25% by THC content).
42. Illinois Policy Institute, How Does Illinois Spend Millions in Cannabis Cash? (Apr. 15, 2024), https://www.illinoispolicy.org/how-does-illinois-spend-millions-in-cannabis-cash/ (“the price of a potent product in Chicago gets up to 41.25% higher”).
43. Illinois Cannabis Sales Revenue Falls, Chicago Tribune, supra note 32.
44. Michigan Dep’t of Treasury, Treasury: Adult-Use Marijuana Payments Being Distributed to Michigan Municipalities, Counties and Tribes (Feb. 21, 2025), https://www.michigan.gov/treasury/news/2025/02/21/adult-use-marijuana-payments-being-distributed (“For the 2024 state fiscal year, there was more than $331 million available for distribution.”).
45. Id. (reporting nearly $100 million to 302 municipalities, counties, and tribes; $116 million to School Aid Fund; $116 million to Michigan Transportation Fund; more than $58,200 per licensed retail store or microbusiness per jurisdiction).
46. Michigan Dep’t of Treasury, Notice to Taxpayers Regarding the Wholesale Tax on Adult-Use Marihuana (CRFTA, signed Oct. 7, 2025), https://www.michigan.gov/treasury/reference/taxpayer-notices/notice-to-taxpayers-regarding-the-wholesale-tax-on-adult-use-marihuana (“CRFTA imposes an excise tax at the rate of 24 percent on sales of adult-use marihuana at the wholesale level…effective January 1, 2026.”).
47. Michigan Governor Signs 24% Cannabis Wholesale Tax Into Law, Cannabis Business Times, https://www.cannabisbusinesstimes.com/us-states/michigan/news/15768874/michigan-governor-signs-24-cannabis-wholesale-tax-into-law-lawsuit-filed (projected at approximately $420.7 million annually; revenue to Neighborhood Road Fund and local roads).
48. Id. (Senate passed 19-17).
49. Varnum LLP, Michigan House Passes 24% Wholesale Cannabis Excise Tax (Sept. 29, 2025), https://www.varnumlaw.com/insights/michigan-house-passes-wholesale-cannabis-excise-tax/ (noting Michigan’s combined 24% wholesale + 10% retail + 6% sales tax creates one of the highest effective cannabis tax rates nationally).
50. Dickinson-Wright, Michigan’s Wholesale Marijuana Tax: Preliminary Thoughts (Oct. 2025), https://www.dickinson-wright.com/news-alerts/sobczak-mi-wholesale-marijuana-tax (noting recursive calculation due to wholesale price definition inclusive of all invoiced amounts could result in effective rate of approximately 32% not 24%; total estimated burden approximately 51%).
51. Michigan Governor Signs 24% Cannabis Wholesale Tax; Lawsuit Filed, Cannabis Business Times, supra note 47 (Michigan Cannabis Industry Association filed 22-page suit in Michigan Court of Claims on Oct. 7, 2025, arguing Legislature failed to obtain three-fourths supermajority required to amend citizen-initiated statutes).
52. Id. (Court of Claims denied motion to block tax from taking effect; constitutional litigation pending as of early 2026).
53. January 1 for Michigan Cannabis: A New Year, A New Headache, Cannabis Law Blog (Dec. 30, 2025), https://www.cannabis-law-blog.com/january-1-for-michigan-cannabis-a-new-year-a-new-headache/ (Treasury published “average wholesale price” 35 hours before effective date; deleted prior statement that tax would not be collected until January 2027; draft Revenue Advisory Bulletin suggests quarterly returns as soon as Q3 2026).
54. Cannabis CPA Tax, Washington Cannabis Tax Guide: 2025 Edition, https://cannabiscpa.tax/washington-cannabis-tax-guide-2025-edition/ (confirming 37% excise tax on all adult-use retail cannabis sales under RCW 69.50.535).
55. Cannabis Observer, WA Legislature—Update (January 29, 2025), https://cannabis.observer/observations/96613-wa-legislature-update-january-29-2025/ (“According to the Washington State Liquor and Cannabis Board (WSLCB) Dedicated Cannabis Account revenue dashboard, the agency collected $458M in excise tax revenue and fees in fiscal year 2024.”).
56. Cannabis Business Plans, Washington Cannabis Market, https://cannabusinessplans.com/washington-cannabis-market/ (“In calendar year 2021, cannabis sales reached their peak at $1,467 million but since then have declined by 18.4% to $1,197 million in 2024.”).
57. Id. (“Washington recorded $562 million in cannabis sales during the first half of 2025; annual revenue is projected to reach $1.1 billion to $1.2 billion.”).
58. Cannabis Observer, WA Legislature (February 2, 2026) Update (Feb. 2, 2026), https://cannabis.observer/observations/110858-wa-legislature-february-2-2026-update/ (describing Sen. King’s January 22, 2026 legislation to restructure WSLCB into two separate five-member boards and a regulatory agency under an appointed Director).
59. Id. (describing Rep. Ormsby’s legislation to increase cannabis licensing and renewal fees by $400 with recurring annual CPI adjustment).
60. Cannabis Observer, WA Legislature (February 4, 2026) Update (Feb. 4, 2026), https://cannabis.observer/observations/111158-wa-legislature-february-4-2026-update/ (noting cannabis excise tax bill was scheduled for hearing but removed from Thursday February 5th agenda).
61. Cannabis Observer, WA Legislature (January 30, 2026) Update (Jan. 30, 2026), https://cannabis.observer/observations/110742-wa-legislature-january-30-2026-update/ (describing Sen. Saldaña’s bill to “re-envision the cannabis product excise taxation scheme” and potentially eliminate the flat 37% excise rate).
62. New York State Office of Cannabis Management, 2025 Annual Report (Dec. 31, 2025), https://cannabis.ny.gov/system/files/documents/2025/12/ocm-annual-report_final-2025.pdf (reporting combined adult-use and medical sales of approximately $1.6 billion year-to-date through 2025, up from $1.0 billion in 2024; cumulative adult-use sales since MRTA passage surpassed $2.5 billion).
63. Id.
64. ArentFox Schiff, Top 10 Issues in the Cannabis Industry for 2025 (Mar. 26, 2025), https://www.afslaw.com/perspectives/alerts/top-10-issues-the-cannabis-industry-2025 (“New York’s Cannabis Advisory Board shows tax revenues from cannabis sales rising from $42.3 million in the fiscal year ending March 2024 to $161.8 million in the current fiscal year.”).
65. New York Office of Cannabis Management, Community Reinvestment Program, https://cannabis.ny.gov/reinvestment (describing statutory 40% allocation of cannabis tax revenue to CGRF).
66. N.Y. OCM, New York State Awards First Round of Community Reinvestment Grants (press release, Oct. 2025), https://cannabis.ny.gov/system/files/documents/2025/10/cgrf-awards-press-release.pdf ($5 million awarded to 50 organizations).
67. Id. (over 82% of grants awarded to organizations serving CDI ZIP codes; each organization received $100,000).
68. N.Y. OCM, Community Reinvestment Program, supra note 65 (anticipated Round 2 applications to open late 2025 or early 2026).
69. N.Y. Senate Bill S1137, 2025-2026 Regular Session, https://www.nysenate.gov/legislation/bills/2025/S1137 (sponsored by Sen. Sanders; would increase permissible SEIF funding from $50 million to $300 million).
70. Minnesota Recreational Cannabis Sales Launch Statewide, Sativa University (Sept. 2025), https://sativauniversity.com/news/business/minnesota-recreational-cannabis-sales/ (first cannabis business license issued June 18, 2025; statewide retail sales launched September 2025 led by Green Goods and Rise).
71. Minnesota Office of Cannabis Management, OCM Launches Market Dashboard (press release), https://mn.gov/ocm/media/news-releases/?id=1202-719775 (118 cannabis business licenses issued by end of 2025; 55% to social equity applicants; 100% of several license types issued exclusively to social equity applicants).
72. Id. ($122.5 million in combined adult-use and medical cannabis sales across more than 1.2 million transactions in the 12 months ending December 2025).
73. Minnesota Dep’t of Revenue, Cannabis Guide, https://www.revenue.state.mn.us/guide/cannabis-business-guide (sales of taxable cannabis products subject to 15% gross receipts cannabis tax in addition to state and local sales taxes).
74. 2025 State-by-State Cannabis Market Outlook, 420 Property (Aug. 2025), https://www.420property.com/2025-state-by-state-cannabis-market-outlook-open-stores-timelines-and-what-it-means-for-real-estate-ma/ (Delaware also opened its adult-use market in 2025).
75. Motley Fool, Marijuana Tax Revenue by State (updated Jan. 2026), https://www.fool.com/research/marijuana-tax-revenue-by-state/ (Delaware charges 15% sales tax; 7% to Justice Reinvestment Fund).
76. 2025 State-by-State Cannabis Market Outlook, 420 Property, supra note 74 (Ohio Division of Cannabis Control reports year-one adult-use sales of approximately $702 million).
77. California Dep’t of Finance, Fund Condition Statement, supra note 18.
78. Marijuana Policy Project, Financial Impact, supra note 15 (“In FY 19 (July 2018-June 2019) $1,829,900 was allocated to the adult-use cannabis program [in Alaska]”).
79. Illinois Cannabis Sales Revenue Falls, Chicago Tribune, supra note 32 (FY 2025 tax collections of $438 million; prior $490 million figure reflected calendar year 2024).
80. Marijuana Policy Project, Financial Impact, supra note 15 (“Application fees vary by state, ranging from $100 to $6,000”; “Licensing fees also vary by state and business type… ranging from $9/plant for small grows in Maine to as high as $850,000 for large Illinois medical cannabis growers.”).
81. Motley Fool, Marijuana Tax Revenue by State, supra note 75; Marijuana Policy Project, supra note 1; NORML, supra note 9; state agency reports cited individually throughout this brief.
82. Illinois Cannabis, Learn How Cannabis Tax Dollars Are Spent, supra note 41; Cannabis Regulation and Tax Act, 410 Ill. Comp. Stat. 705/65-45 (2019) (establishing Cannabis Regulation Fund distribution formula).
83. N.Y. OCM, New York State Awards First Round of Community Reinvestment Grants, supra note 66.
84. Motley Fool, supra note 75 (reporting Delaware charges 15% sales tax and directs 7% to Justice Reinvestment Fund).
85. Massachusetts Executive Office of Economic Development, Cannabis Social Equity Trust Fund, https://www.mass.gov/info-details/cannabis-social-equity-trust-fund (“The FY25 Grant Program received a total of 278 applications and awarded a total of $26,500,000 in grant funding to 181 social equity businesses.”).
86. Colorado Dep’t of Revenue, Disposition of Marijuana Tax Revenue, https://cdor.colorado.gov/data-and-reports/marijuana-data/disposition-of-marijuana-tax-revenue (“For FY 2024-2025, all of the retail marijuana excise tax received shall be transferred to the Public School Capital Construction Assistance Fund.”).
87. Michigan Dep’t of Treasury, supra note 44; Michigan Dep’t of Treasury, Notice to Taxpayers Regarding the Wholesale Tax, supra note 46 (new 24% wholesale tax revenues to Neighborhood Road Fund).
88. Minnesota cannabis regulatory updates 2025 (citing 2025 legislative changes repealing 20% local government share requirement, consolidating revenue at state level), https://www.carpfishcreative.com/post/mn-update.
89. Cal NORML, supra note 20 (DCC-commissioned ERA report: unlicensed cannabis represents approximately 63% of what’s consumed in California; approximately 89% of what’s produced).
90. Governor Hochul, FY 2025 Budget Agreement Announcement (2024), https://www.budget.ny.gov/pubs/press/2024/fy25-enacted-budget-agreement.html.
91. IDFPR, Pritzker Administration Announces Cannabis Sales Exceed $2 Billion Annually, supra note 29.
92. Congressional Research Service, supra note 4 (November 2025 hemp redefinition effective November 2026); Indiana Capital Chronicle, Indiana Hemp Drug Ban Clears First Hurdle (Jan. 16, 2026), https://indianacapitalchronicle.com/2026/01/16/indiana-hemp-drug-ban-clears-first-hurdle/ (Indiana SB 250 replicating federal ban).
93. Cal NORML, AB 564 to Stop a Cannabis Tax Increase, https://www.canorml.org/stophighertaxes2/ (“The CDTFA collected $600 million in excise tax revenue from licensed operators in 2024, falling short of an annual $670-million benchmark established in the 2022 law to avoid the tax hike.”).
94. Illinois Policy Institute, supra note 42 (combined tax rates up to 41.25% in Chicago; consumers near Michigan and Missouri borders making cross-border purchases).
95. Michigan Lawmakers Pass 24% Cannabis Wholesale Tax, Cannabis Business Times, https://www.cannabisbusinesstimes.com/us-states/michigan/news/15768584/michigan-lawmakers-pass-24-cannabis-wholesale-tax-dealing-devastating-blow-to-industry (quoting Sen. Lindsey: he doubted the new tax would generate “anywhere near” the projected $420 million).
96. Whitney Economics quoted in California Bill to Freeze Cannabis Excise Tax, Cannabis Business Times, supra note 11 (“states with high taxes are lagging behind other states in terms of the percentage of legal participation”).
97. California Dep’t of Finance, Fund Condition Statement, supra note 18.
98. Michigan Public, Cannabis Regulators Ask for Help Managing Michigan Marijuana Industry (Sept. 9, 2025), https://www.michiganpublic.org/politics-government/2025-09-09/cannabis-regulators-ask-for-help-managing-michigan-marijuana-industry (“The Cannabis Regulatory Agency’s 2024 budget included $2.8 million to build and equip a Cannabis Reference Lab.”).
99. Illinois Cannabis Regulation Oversight Office, Sales Figures, supra note 37.
100. 100.Goodwin, Bye-Bye 280E: New Executive Order Concerning Cannabis Rescheduling (Dec. 23, 2025), https://www.goodwinlaw.com/en/insights/publications/2025/12/alerts-practices-can-bye-bye-280e (President Trump signed Executive Order December 18, 2025 directing AG to complete rulemaking to reschedule marijuana to Schedule III).
101. 101.Id. (280E prohibiting deductions for ordinary business expenses; state-licensed operators subject to effective federal tax rates of 70% or more).
102. 102.Flowhub, Cannabis Rescheduling to Schedule III: What It Means for the Industry (Dec. 18, 2025), https://www.flowhub.com/learn/cannabis-rescheduling-schedule-iii-what-it-means (citing Headset analysis: typical dispensary saves approximately $268,000/year; higher-volume stores ~$800,000/location).
103. 103.Id. (industry-level 280E relief could unlock $1.6–$2.2 billion in incremental after-tax cash flow annually).
104. 104.MJBizDaily, Is 280E Tax Relief Immediate?, supra note 6 (cannabis remained Schedule I for all of 2025; 280E applies for full 2025 tax year; IRS expected to clarify timing once final rule published; potential “Deferred Rescheduling Approach” could delay relief to tax years beginning after rescheduling).
105. 105.Verdant Strategies, Cannabis Rescheduling and What This Means for the Industry (Dec. 19, 2025), https://verdantstrategies.com/blog/cannabis-rescheduling-what-this-means-for-the-industry (advising that “rescheduling should be understood as a structural reset rather than a finish line”).
106. 106.Illinois Dep’t of Revenue, FY2023 Annual Cannabis Report (House Bill 3817, Public Act 103-0008, allowing Illinois cannabis industry to subtract business expenses disallowed under federal 280E); HBK CPA, Federal Tax Regulations and Strategies for Cannabis Businesses (Jan. 22, 2025), https://hbkcpa.com/insights/federal-tax-regulations-and-strategies-for-cannabis-businesses/ (noting New Jersey state income tax decoupling from 280E).
107. 107.The Marijuana Herald, U.S. Congress: Every Active Cannabis Bill in 2026 (Jan. 2, 2026), https://themarijuanaherald.com/2026/01/u-s-congress-every-active-cannabis-bill-in-2026/ (“Rather than loosening federal tax restrictions, this bill would explicitly preserve Section 280E… It has 11 sponsors in the House, and two in the Senate.”).
108. 108.IDFPR, 2025 Annual Cannabis Report, supra note 35.
109. 109.N.Y. OCM, 2025 Annual Report, supra note 62.
110. 110.California LAO, The 2024-25 Budget: DCC Legal and Administrative Hearing Costs, supra note 16.
111. 111.California State Auditor, Report 2024-048: Cannabis Business Licensing (Feb. 2025), https://www.auditor.ca.gov/reports/responses-2024-048-all/; California State Auditor, Report 2025-048: Cannabis Business Licensing (Nov. 2025), https://www.auditor.ca.gov/reports/2025-048/.
112. 112.California State Auditor, Report 2024-048, supra note 111 (“OGM has fully closed out 6 of 17 grant agreements, resulting in the return of $4,094,936.57 in unspent award funds and recaptured funds related to ineligible expenditures.”).
113. 113.Agnes Balla, Raymond G. Boyle & Christina Dempsey, State Funding for Cannabis Research: An Analysis of Funding Mechanisms and Levels, 7 J. Cannabis Res. 15 (Mar. 14, 2025), https://jcannabisresearch.biomedcentral.com/articles/10.1186/s42238-025-00264-0; Cal. DCC, DCC Awards Nearly $30 Million in Competitive Research Grants (Dec. 26, 2025), https://www.cannabis.ca.gov/ (noting third round of grant funding, totaling nearly $80 million since 2020).