In 2021, Arizona witnessed the legalization of two long-operating but previously illicit industries: sports betting and recreational cannabis. This change brought a surge of tax revenue to the state, with one industry outpacing the other significantly.
While sports betting enjoys greater popularity per capita in the state, it contributes only a small percentage of the taxes compared to the marijuana sector.
According to 2023 revenue data, the total wagering amount on sportsbooks in the state was almost five times greater than the state’s entire marijuana sales. However, despite this, the tax revenue from cannabis companies was more than eight times higher than that from sports betting.
According to the state’s Gaming Department, more than $6.5 billion was collected through sportsbooks and betting apps in 2023. However, sports betting companies paid somewhat more than $34.8 million to the state treasury, which was placed in the general fund. In contrast, the state’s Revenue Department reported that retail marijuana sales, encompassing both recreational and medical sales, amounted to about $1.36 billion in the same period, with tax collected from these sales being $284.3 million.
The disparity in tax rates between the two sectors can be attributed to the distinct regulatory frameworks governing them. The marijuana market bears a heavy tax burden, with several levies imposed on every sale. Marijuana dispensaries in the state are required to report sales for both recreational and medical purposes. Additionally, besides the standard sales tax, dispensaries are subject to a 16% state excise tax. Revenues generated from this tax are allocated to various sectors including public safety and community colleges.
On the other hand, laws governing sports betting in the state stipulate that taxes are paid on net revenue following payouts to successful bettors rather than the whole amount wagered. As a result, the state receives less tax money from larger reimbursements. Moreover, sportsbooks can deduct expenses such as promotional offers and free bets from their gross revenue, further reducing the taxable amount. Last year, more than $196 million in free bets were distributed by sportsbooks in Arizona, diminishing potential tax revenue by almost $20 million.
Compared to other states that have legalized sports betting, Arizona levies a lower 10% tax on gross wagering earnings from operators. Massachusetts taxes sportsbook profits at 20%, whereas Illinois taxes them at 15%. The tax rates in New Hampshire, Rhode Island and New York are notably higher, at 51%.
While it is possible to make changes to the current statutes, doing so may be difficult because neither was created by the state’s legislature. Recreational cannabis was legalized through a ballot vote in 2020, while sports betting was approved via a renegotiated gaming agreement between Arizona’s state government and native American tribes.
The Arizona marijuana community has expressed concerns about the excessive tax loads in comparison to the sports betting sector.
Mazor Collective CEO Lilach Mazor Power expressed frustration, highlighting the perceived greater social value of the marijuana industry. Mazor Power stated that the sports betting sector may potentially do more. She also stressed that not everyone involved in the marijuana industry makes significant money, so it’s important to be wary of assuming that everyone is wealthy.
Representatives of the gaming sector, on the other hand, state that even with its widespread appeal, sports betting only generates marginal returns when contrasted with other gaming options, such as slot machines or board games.
When the excessive taxes to which the marijuana industry is subjected reach untenable levels, there could be a domino effect that could result in reduced business opportunities for ancillary companies, such as Astrotech Corp. (NASDAQ: ASTC), that serve verticals within the cannabis industry.
NOTE TO INVESTORS: The latest news and updates relating to Astrotech Corp. (NASDAQ: ASTC) are available in the company’s newsroom at https://ibn.fm/ASTC
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