Connecticut collected $11.2 million in cannabis tax revenue during the second quarter of 2024, a 67% increase from the same period last year, even as adult-use sales remained essentially flat at $52.8 million.
The unusual gap between sales and tax revenue stems from the state's THC potency tax, which added a levy of $0.00625 per milligram of THC on top of Connecticut's standard 6.35% sales tax and local taxes. That potency tax ended October 1, 2024, as scheduled under the state's original legalization law.
"The potency tax was always intended as a temporary revenue measure," said Paul Armentano, deputy director of NORML. "But it created some perverse incentives for both retailers and consumers during its final months."
The tax structure meant higher-potency products carried significantly steeper tax bills. A 100mg edible, for example, incurred an additional 62.5 cents in taxes beyond standard sales tax. For concentrates testing at 80% THC, the potency tax could add several dollars per gram.
The Numbers
Connecticut's adult-use market has shown modest but steady growth since launching in January 2023. Second-quarter sales of $52.8 million represented just a 2.3% increase year-over-year, far below the double-digit growth rates seen in more mature markets like Colorado and Michigan.
But tax collections told a different story. The $11.2 million collected in Q2 2024 compared to $6.7 million in Q2 2023. The state's Department of Revenue Services attributed the divergence primarily to the potency tax, which generated an estimated $3.8 million during the quarter.
Industry analysts note Connecticut faces unique competitive pressures. The state borders Massachusetts, which has operated adult-use dispensaries since 2018 and offers lower prices on many products. Rhode Island launched sales in December 2022. New York's market, while slower to develop, has begun opening licensed retailers.
What Retailers Are Saying
Several Connecticut dispensary operators told trade publications the potency tax created pricing challenges. High-THC products became less competitive with neighboring states, pushing some consumers toward lower-potency options or cross-border shopping.
The tax also complicated inventory decisions. Some retailers reported stocking up on high-potency products ahead of the October 1 sunset, anticipating demand would increase once the tax disappeared.
Connecticut currently has 34 active adult-use dispensaries, according to state data. That's up from 28 a year ago, but still represents limited access for a state of 3.6 million people. Massachusetts, by comparison, operates roughly 250 adult-use stores for a population of 7 million.
What's Next
With the potency tax now expired, Connecticut's tax structure consists of the 6.35% sales tax plus local option taxes that vary by municipality. Industry observers expect this could boost sales modestly in Q4 2024 and into 2025, though the state will likely see a corresponding drop in tax revenue.
The Connecticut Department of Consumer Protection has approved 12 additional dispensary licenses that have not yet opened. Those stores could help address access gaps, particularly in underserved regions like the eastern part of the state.
Legislators are also considering expanding the state's medical cannabis program, which currently serves about 55,000 registered patients. A bill introduced in the 2024 session would add chronic pain and anxiety to the list of qualifying conditions, though it did not advance before the session ended.
State officials project annual adult-use sales will reach $250 million to $275 million by the end of 2024, generating approximately $40 million in tax revenue under the revised structure.
This article is based on original reporting by mjbizdaily.com.
