Pennsylvania Must Not Over-Tax Marijuana If Legalization Is Going To Work Well (Op-Ed)

*“The evidence from other states is unambiguous: over-taxation kills
cannabis markets’ ability to displace illicit sales and generate
sustainable revenue.”*

*By Max Jackson, Cannabis Wise Guys*

Pennsylvania Gov. Josh Shapiro’s (D) 2026/27 budget proposal to legalize
marijuana projects $729 million in first-year cannabis revenue to address
Pennsylvania’s $4.8 billion structural deficit. It’s a politically
appealing pitch: legalize cannabis, capture tax dollars currently flowing
to neighboring states and fund education and infrastructure without raising
income taxes.

But Shapiro himself acknowledged the central challenge in his budget
proposal: approximately 60 percent of customers at New Jersey and Maryland
border dispensaries are Pennsylvania residents. Nearly half of
Pennsylvania’s population lives in a county bordering a state with legal
cannabis. Pennsylvania residents are already cannabis consumers—they’re
just funding other states’ tax programs instead of Pennsylvania’s.

The $729 million projection assumes those customers will shift to
Pennsylvania dispensaries once adult-use sales begin. But that only happens
if Pennsylvania’s legal market can compete on price, quality and access
with the options consumers already use: border-state dispensaries, illicit
dealers and THCA hemp shops.

And the fastest way to guarantee they don’t is to design a tax structure
that treats cannabis as a captive revenue source while expecting it to
compete in an open market.

*The Tax Stacking Problem*

When states layer multiple taxes on cannabis to maximize short-term revenue
extraction, they create a predictable failure pattern.

A state excise tax of 10-15 percent, combined with local municipal taxes of
3-5 percent, plus standard sales tax of 6-7 percent, creates cumulative tax
rates in the 20-25 percent range or higher.

That pricing premium makes legal cannabis uncompetitive with illicit
alternatives—and consumers making purchasing decisions don’t distinguish
between “fair” and “unfair” taxes. They see the final out-the-door price
and decide whether it’s worth paying.

Pennsylvania’s challenge is even more acute because of the border dynamics
Shapiro acknowledged.

A Pennsylvania resident living in a border county isn’t just choosing
between legal and illicit options—they’re choosing between Pennsylvania’s
dispensary and the one thirty minutes away in Ohio, Maryland or New Jersey.
If Pennsylvania’s tax structure makes its legal cannabis 20-30 percent more
expensive than neighboring states, consumers will keep doing what they’re
already doing: buying elsewhere.

*Michigan’s Live Experiment: What Happens When You Kill a Working Market*

Michigan built one of the country’s most successful legal cannabis programs
by allowing competitive licensing and tax rates low enough to let legal
operators undercut illicit pricing. The result was robust illicit-market
displacement and growing tax revenue.

Then, facing budget pressures, Michigan legislators imposed an additional
24 percent wholesale tax on cannabis beginning January 1, 2026 to fund road
repairs. The state is now conducting a live experiment in whether you can
retroactively over-tax a working market without driving consumers back to
illicit options or across state lines.

Early indicators suggest the answer is no—operators are warning of
closures, and consumer advocates are predicting a resurgence of illicit
market activity as legal prices become uncompetitive.

Pennsylvania legislators should watch carefully. Michigan had the advantage
of an established legal market with consumer habits already formed.
Pennsylvania could be launching directly into a high-tax environment,
asking consumers who currently have multiple options to choose the most
expensive one.

*The Wholesale Tax Mistake California Already Made*

California initially imposed a per-ounce wholesale cultivation tax,
treating cannabis as a commodity that could absorb taxation at every supply
chain stage. The result was predictable: cultivators couldn’t survive the
economics, wholesale prices collapsed and the illicit market thrived
because legal operators couldn’t compete on price while carrying a tax
burden their illicit competitors didn’t face.

California repealed its wholesale cultivation tax in 2022 after recognizing
it was actively undermining the legal market.

If Pennsylvania imposes wholesale cultivation taxes in addition to
retail-level taxation, the state will replicate California’s
mistake—cultivators will face impossible economics, and the tax revenue
Pennsylvania projects will never materialize because the businesses
expected to generate it won’t survive.

*The Industry Infrastructure Problem*

Shapiro’s budget allocates $25 million for social equity programs. But the
deeper problem is what happens when states extract maximum tax revenue from
cannabis to plug general budget deficits: the industry can’t fund the
regulatory infrastructure, technical assistance programs and support
systems it needs to function.

Cannabis regulation is expensive. State regulators need funding for
inspections, compliance monitoring, laboratory oversight and enforcement.

Social equity programs require technical assistance, business development
support and access to expertise to help new operators survive the critical
first years, when most cannabis businesses operate at a loss.

If Pennsylvania siphons all cannabis tax revenue out of the industry to
address unrelated budget shortfalls, these systems don’t get built—and the
market fails to develop the way revenue projections assume it will.

Equity licenses without operational support systems are performative
policies that set participants up for failure. But the same principle
applies across the entire market: if the industry can’t retain enough
revenue to build functional infrastructure, compliant businesses struggle,
regulatory oversight weakens and the illicit market wins.

*The Revenue Only Works If the Market Works*

Shapiro is correct that Pennsylvania is losing potential tax revenue to
neighboring states. He’s correct that cannabis legalization could capture
some of that revenue. But the $729 million projection is only realistic if
Pennsylvania builds a market that works—for consumers who need competitive
pricing and convenient access, and for businesses that need viable
economics and clear regulations.

The evidence from other states is unambiguous: over-taxation kills cannabis
markets’ ability to displace illicit sales and generate sustainable
revenue. Michigan is discovering this in real-time. California learned it
and reversed course.

Pennsylvania has the advantage of learning from these mistakes instead of
repeating them.

Shapiro stated the core problem: 60 percent of border dispensary customers
are Pennsylvania residents. Those consumers have demonstrated they’ll
travel for their cannabis. Pennsylvania’s legal market must compete for
their business—it can’t assume their compliance. The fastest way to lose
that competition is to design a tax structure that makes Pennsylvania’s
legal cannabis the most expensive option in a fifty-mile radius.

Pennsylvania residents are already cannabis consumers. The question isn’t
whether they’ll buy cannabis—it’s whether Pennsylvania will build a market
competitive enough to capture their business, or whether they’ll keep
funding New Jersey, Maryland, Ohio and the illicit market instead.

The $729 million budget projection depends entirely on getting that answer
right.

*Max Jackson is the founder of Cannabis Wise Guys and specializes in
translating between cannabis operations, investment and public policy.*

*Photo courtesy of Max Jackson.*

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To Work Well (Op-Ed) appeared first on Marijuana Moment.