Colorado Weighs Cannabis Tax Hikes Under House Bill 26-1301 to Fund Mental Health Hospital

(COLORADO) — Colorado lawmakers moved this year to revisit cannabis taxes as the state’s legal marijuana market logs a fourth straight year of declining sales and operators warn they cannot absorb higher costs.

Legislators have put forward competing bills that would raise some marijuana levies while also reworking how Colorado taxes wholesale flower, linking the debate to broader questions about public health funding and a shrinking industry.

House Bill 26-1301, introduced in early 2026, would increase the retail marijuana state sales tax and the marijuana excise tax to help finance a new state mental health hospital in Aurora. The proposal would need legislative approval and then a voter referendum.

Industry groups and some allied sectors have pushed back, arguing that higher taxes risk accelerating store closures, reducing consumer demand, and widening the price gap with hemp-derived intoxicants and legal markets in other states.

“Marijuana in Colorado is already subject to substantially higher taxes than other consumer products, and neither the businesses nor consumers can afford another increase,” said Mason Tvert of Colorado Leads.

Colorado’s marijuana market, one of the nation’s oldest, has struggled through a prolonged downturn as more states legalized and local prices fell. Sales dropped to about $1.1 billion from January to October 2025, down from $1.4 billion in 2024 and a peak of $2.2 billion in 2022, with February 2026 sales at $83.2 million (8.4% year-over-year decline).

The slide has reshaped the tone at the state Capitol during the 2026 session, which was six weeks in as of March 2026. Lawmakers face pressure to sustain public revenues tied to marijuana while also hearing warnings that additional taxes could weaken a sector already consolidating.

House Bill 26-1301 pairs the proposed marijuana changes with alcohol tax increases, linking “sin tax” debates that usually move separately. Rep. Marshall said he added marijuana taxes at law enforcement’s recommendation, and the measure includes an alcohol tax figure of $0.6026 per liter on spirits.

Supporters of House Bill 26-1301 have framed the measure around building a mental health hospital, putting a concrete public project behind a tax policy that often splits lawmakers along familiar lines over affordability and enforcement.

The bill sits atop a complex stack of existing charges that include a marijuana excise tax, a special sales tax and the broader state sales tax, alongside local levies. That layering, operators say, can make consumers more price-sensitive when a few percentage points can separate a legal purchase from cheaper alternatives.

Tyler Rudd of the Wine Institute joined cannabis and liquor industry voices arguing the package would burden already strained sectors. The article did not include a direct quote from Rudd.

Even as lawmakers debate whether to raise retail and excise taxes, a separate proposal aims to change how Colorado collects wholesale marijuana excise taxes, reflecting how far the market has shifted since the early years of legalization.

House Bill 26-1077 targets the state’s wholesale excise framework, which relies on the Colorado Department of Revenue’s quarterly average market rate, or AMR, for marijuana flower. Under that system, the tax base moves with statewide wholesale prices rather than tracking what individual businesses earn.

The AMR approach has become a flashpoint as wholesale prices fell to record lows. Stakeholders say that creates a mismatch between tax policy written for a higher-priced market and today’s slimmer margins, especially for cultivators competing in an oversupplied state.

Colorado’s Department of Revenue calculated a median price per pound of $648 for flower in December 2025, a record low. House Bill 26-1077 responds by proposing different tax treatment for indoor and outdoor flower, an effort that supporters say better reflects underlying costs.

Brent McDonald of Apothecary Farms backed the bill, while The Epic Remedy opposed it. The article did not include direct quotes from either.

Supporters have also pointed to a contraction in the cultivation side of the business as evidence of stress. Colorado’s count of licensed cultivators fell 48% to 488 as of December 2025, an indicator that operators are leaving the market or consolidating.

That contraction matters for state finances because Colorado taxes marijuana at several points in the supply chain. Falling prices can reduce tax collections even when product volume holds up, weakening the revenue that lawmakers have historically used to fund public programs.

The state’s marijuana tax revenue has already retreated from earlier highs. Colorado collected $231.1 million in 2024-25 FY revenue, described as 45.5% below the 2020-21 peak.

Category-level performance has also shifted as consumers change buying habits. In February 2026, year-over-year declines were shown in flower, vapor pens and edibles, while pre-rolls rose.

Businesses have responded with closures, exits and consolidation. Bubba’s Kush, Dablogic, L’Eagle, Verde, Maggie’s Farm, Terrapin Care Station, Lightshade and Good Chemistry were listed as notable operators that have closed or exited, without providing an exhaustive accounting of the state’s market.

Gov. Jared Polis has highlighted the endurance of the legal market even amid the slump. Polis pointed to 2025’s $1 billion sales milestone, while also warning that a federal hemp ban, effective November 2026?, may stifle innovation.

The drivers of Colorado’s downturn extend beyond state policy. Legalization has spread across the country, reducing the destination demand that once drew visitors to Colorado dispensaries when fewer states offered regulated adult-use sales.

Operators and analysts also cite post-COVID oversupply. As cultivation expanded and new products flooded shelves, wholesale and retail prices slid, compressing margins for growers and retailers at the same time that labor, compliance and real estate costs remained.

Intoxicating hemp products have added another layer, pulling consumer spending and complicating enforcement and taxation. When consumers can buy psychoactive products outside the regulated marijuana system, licensed sellers say they face competition that does not carry comparable testing, tracking and tax burdens.

Colorado lawmakers weighing cannabis tax hikes have also compared marijuana levies with other consumer taxes in the state. Cannabis still outpaces alcohol and cigarette taxes, without providing a full set of comparative figures.

The tax fight also intersects with public services beyond the proposed Aurora mental health hospital. Marijuana taxes have long been tied to state and local programs, and changes in collections can ripple through budgets that grew used to higher receipts during earlier boom years.

At the federal level, lawmakers in Colorado are watching potential shifts that could reshape marijuana taxation far beyond the state’s borders. President Trump’s December 2025 executive order on rescheduling to Schedule III could alter how cannabis businesses handle federal taxes, including the treatment of Section 280E.

Section 280E restricts standard business deductions for companies trafficking in Schedule I or Schedule II controlled substances under federal law, a policy cannabis operators have long blamed for pushing effective tax rates far above those of other industries.

Rescheduling to Schedule III could end Section 280E tax restrictions, potentially saving the industry $2.3 billion nationally. That could boost Colorado revenue, as healthier businesses expand payrolls and investment, though it did not quantify the state impact.

The effective timing and scope of federal changes remain uncertain, and Colorado lawmakers have continued drafting state-level proposals rather than waiting for Washington.

More cannabis bills were expected in the 2026 session across hospitality, taxes and healthcare policy areas, suggesting the debate will extend beyond the immediate question of whether to raise rates under House Bill 26-1301 or rework the wholesale base under House Bill 26-1077.

For operators, the short-term worry is immediate: a market that has lost momentum, with prices low and competition rising, while policymakers debate whether the answer is higher taxes, a new formula, or a broader reset. “Marijuana in Colorado is already subject to substantially higher taxes than other consumer products, and neither the businesses nor consumers can afford another increase,” Tvert said.