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What Are Excise and Earmarked Taxes, and When Are They Appropriate?

An excise tax is a tax imposed on a specific good or activity, like tobacco or indoor tanning. An earmarked tax is a tax for which revenue is dedicated for a specific purpose.6 There is generally consensus among tax scholars that it is only appropriate to earmark excise tax revenue for spending initiatives that offset externalities associated with the use of the good or engagement in the activity (ie, when an individual’s use of the good or engagement in the activity produces consequences for others or society).

By this standard, it would be appropriate to implement excise taxes on recreational cannabis and earmark revenue for mental health services and systems. This is because a growing body of evidence suggests that increases in cannabis access, especially high-potency cannabis, through recreational and medical cannabis laws are associated with increases in mental health problems at the population level—such as increased risk of psychological distress and schizophrenia.24 These mental health problems have social and financial costs for society (ie, produce externalities). Earmarking a proportion of recreational cannabis excise tax revenue for mental health would also be consistent with how alcohol and tobacco excise taxes are earmarked for substance misuse prevention and treatment in many states.

What Impacts Can Earmarked Recreational Cannabis Excise Taxes Have on Mental Health Spending?

The Table illustrates the extent to which earmarking recreational cannabis excise taxes could increase state investments in mental health. We present a hypothetical scenario in which 25% of each state’s annual cannabis excise tax revenue is earmarked for mental health. We express this revenue as (1) percentage increase in annual mental health agency spending, and number of additional encounters covered for (2) mobile psychiatric crisis units, (3) coordinated specialty care for first-episode psychosis, and (4) the National Suicide Prevention Lifeline (the Lifeline). We focus on these services because they are elements of mental health crisis systems, which are primarily funded by state and local governments and generally lack a sustainable financing model. Furthermore, demand for these services is projected to increase substantially after 988 becomes the 3-digit dialing code for the Lifeline on July 16, 2022.10

Table.  Revenue From State Recreational Cannabis Excise Taxes Expressed as Potential Investments in Mental Health, Fiscal Year 2020a

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Revenue From State Recreational Cannabis Excise Taxes Expressed as Potential Investments in Mental Health, Fiscal Year 2020a

Colorado—1 of the first 2 states to pass recreational cannabis laws in 2012, Washington being the other—provides an example of the potential magnitude of earmarking cannabis excise tax revenue for mental health. If 25% of the state’s cannabis excise tax revenue ($76 819 582) was earmarked for the state mental health agency, where it could be spent on a range of initiatives, it would equate to a 10.1% increase in the agency’s annual spending. Alternatively, if this revenue were evenly distributed for spending across the 3 types of mental health services, it would equate to financing an additional 9247 mobile psychiatric crisis unit encounters, covering coordinated specialty care for first-episode psychosis program costs for an additional 11 020 patients, and an additional 311 962 calls, chats, or texts being handled through Lifeline call centers in the state.

Recreational Cannabis and Tax Policy Making: Implications for Mental Health Clinicians and Researchers

Recreational cannabis laws are a complex mental health policy issue that requires thoughtful consideration of risks and benefits. As DeVylder and colleagues describe,5 the issue requires balancing the risks of mental health consequences with the benefits of improving structural determinants of mental health among Black and Hispanic communities that have been disproportionately affected by cannabis criminalization. Earmarking recreational cannabis excise tax revenue for mental health services is a pragmatic financing strategy to help reduce risks and maximize benefits.

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Article Information

Published: April 1, 2022. doi:10.1001/jamahealthforum.2022.0292

Open Access: This is an open access article distributed under the terms of the CC-BY License. © 2022 Purtle J et al. JAMA Health Forum.

Corresponding Author: Jonathan Purtle, DrPH, MSc, Department of Public Health Policy and Management & Policy, New York University School of Global Public Health; Global Center for Implementation Science, New York University, 708 Broadway, Room 715, New York, NY 10003 ([email protected]).

Conflict of Interest Disclosures: Dr Purtle reported receiving grants from the National Institute of Mental Health during the submitted work. No other disclosures were reported.



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