Marijuana sales are taxed in Colorado.

DALLAS -- Tax revenues from legal recreational marijuana sales in Colorado are exceeding expectations and will continue to grow, according to a Moody's Investors Service report.

"We anticipate near-term growth in these revenues as the Colorado market matures and as legalization lessens the appeal of black market sales, which should redistribute revenue from illegal traffickers to state coffers," said Moody's analyst Andrea Unsworth.

The April 11 report, "Colorado's Legalized Marijuana Tax Revenues Exceed Expectations," noted that the revenues will remain a small fraction of overall state and local budgets.

The sale of marijuana for recreational use became legal in Colorado on Jan. 1. In February, initial sales figures led the governor's office to revise its projections of first-year marijuana sales and excise tax revenues upward by 40%, from $70 million to $98 million.

"Even at their higher levels, these revenues will constitute only a small percentage of the state's general fund dollars, at 1.4%," analysts noted. "School districts will benefit most from the marijuana tax revenues to be distributed to local governments. Authorized spending from the revenues includes $40 million for public school construction. The spending also includes $10.4 million for regulatory oversight and $2 million for substance abuse treatment."

Decriminalization and legalization of marijuana will likely modestly reduce policing costs, although the net effect on enforcement costs is unclear, the report said. Decriminalization will reduce costs related to arrests, prosecution, sentencing, and incarceration, analysts said.

However, as a letter from the Colorado Association of Chiefs of Police to the governor recently noted, marijuana in Colorado still carries enforcement costs, such as policing for unlicensed and illegal sales, preventing diversion to other states, and checking for drivers under the influence of marijuana.

Colorado imposes a 15% excise tax on the wholesale price of marijuana, which authorities collect upon the first sale or transfer from a cultivation facility. There is an additional 10% sales tax on retail sales in addition to the pre-existing 2.9% tax on medicinal marijuana. Colorado returns 15% of the 10% sales tax revenue to local governments, and the remaining 85% stays with the state.

Retail marijuana sales in Washington, the only other state to legalize the drug's recreational use, will begin in June.

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