Maryland Legalized Recreational Marijuana—How Will They Tax It?

Maryland Legalized Recreational Marijuana—How Will They Tax It? 

In the wake of the recent election, more than 155 million Americans now live in a state where marijuana is legal. Maryland and Missouri were the most recent states to permit recreational marijuana use, making it legal in 21 states and counting. But legalizing the drug is only the first step. Next, the heavy lifting begins: creating and enforcing a taxation scheme.   

In Maryland, the General Assembly is slated to address taxation in the coming legislative session. As states begin to roll out their taxation schemes, they need to make sure they have the right technology in place to stay on top of noncompliance. Whenever something is taxed, there will be people trying to dodge the tax burden. It’s unfortunate, but it’s the truth. Revenue brought in from marijuana sales can be used to fund and improve social programs people depend on. Collecting every penny is crucial.   

Weeding out noncompliance 

To properly enforce a taxation scheme, government agencies need to implement technology for fraud detection, event investigation, and insider threat alerts. Natural language processing and machine learning are indispensable tools for detecting suspicious behavior. Ideally, government agencies will be able to adapt or add to existing solutions (e.g. platforms for income tax noncompliance). Arizona, for instance, recently completed a pilot program to verify W-2 tax withholdings. By comparing historical data to existing filings, the state uncovered a $5 million discrepancy.   

A similar approach can be used for marijuana sales, ensuring every tax dollar is captured.  

Employment and tax data from retail businesses similar to cannabis dispensaries can be used to spot indicators of fraud. Let’s say multiple dispensaries are in the same area. They report similar revenue but are paying vastly different taxes. The machine learning algorithm can flag such indicators of noncompliance. The same holds true if a large dispensary is reporting abnormally small sales. Having the right technology in place is a gamechanger when it comes to tax enforcement. 

Enabling data sharing 

A wide range of government actors have a stake in the legalization of marijuana. States also need a data governance solution that allows for inter-agency sharing and advanced analytics. Returning to Arizona, different departments deal with different parts of the marijuana supply chain. Licensing falls under the purview of the Department of Health, while taxation is handled by the Department of Revenue. Ideally, all actors will have access to all data related to marijuana sales in an easy-to-use, self-service platform.  

Let’s say marijuana cultivators and distributors share sales data with one agency and seed-to-sale information with another. There still needs to be a centralized record—one that state and local agencies can access through a streamlined user interface. With disparate data all in one place, states can use advanced analytics to better predict tax revenues from marijuana sales, improving budget certainty and ensuring every dollar is put to good use. In turn, the department will be able to communicate clearly—to the legislature, relevant agencies, and the public—that the legalization of marijuana is doing what it was intended to do: fund programs that benefit residents.  

Looking ahead 

For the state of Maryland in particular, this is a dynamic time from a policy perspective. The state has a new governor, new faces in the General Assembly, and a new comptroller. These leaders have an important task ahead of them: laying the groundwork for a new revenue stream that could improve countless residents’ lives. They need a system that is smart, seamless, and adaptable. In addition to flagging noncompliance and enabling advanced analytics, government leaders need a platform that can adapt to policy changes and easily integrate with existing solutions. 

As things currently stand, it seems unlikely that recreational marijuana will hit shelves in Maryland before 2024. In addition to needing substantive regulation, the Maryland Medical Cannabis Commission is required to complete a disparity study, meant to improve diversity among industry participants. The study is due March 1, 2023. Altogether, the state of Maryland has a lot of work to do before it begins selling marijuana, much less benefiting from the additional revenue. 

Any state beginning to think about its taxation scheme should consider turning to a trusted partner like Voyatek. We have years of experience helping government agencies use technology to improve outcomes. Already, we’ve helped several state and local agencies implement and enforce marijuana taxation schemes. If your state needs a trusted partner, contact us today. 

-Voyatek Leadership Team