Connecticut will replace its THC-based cannabis excise tax on Oct. 1 with a flat 10.75% excise tax on cannabis gross receipts under Public Act 26-68, moving from a tax calculated on a product's labeled THC content to one calculated on retail sales. The state's Office of Fiscal Analysis estimates the replacement will reduce state revenue by $1.9 million in fiscal year 2027 and $2 million in fiscal year 2028, according to the analysis of the change by Lou Rinaldi, who lives in Guilford.
Connecticut to Replace THC-Based Cannabis Tax With 10.75% Excise Tax on Oct. 1
Connecticut will replace its THC-based cannabis excise tax on Oct. 1 with a flat 10.75% excise tax on cannabis gross receipts under Public Act 26-68, moving from a tax calculated on a product's labeled THC content to one calculated on retail sales. The state's Office of Fiscal Analysis estimates the replacement will reduce state revenue by $1.9 million in fiscal year 2027 and $2 million in fiscal year 2028, according to the analysis of the change by Lou Rinaldi, who lives in Guilford.
The Office of Fiscal Analysis projects the revenue reduction continuing at $2.1 million in fiscal year 2029 and at approximately $2.2 million annually thereafter.
Using Connecticut's reported cannabis tax collections and retail-sales data, Rinaldi estimates the existing potency tax generated roughly $2.8 million to $3.4 million per month between January and May 2026. Applying the new 10.75% rate to taxable retail sales in the same period produces roughly $1.9 million to $2.2 million per month, an average monthly difference of about $1 million, assuming sales, product mix and prices were otherwise unchanged. Rinaldi writes that this is a counterfactual estimate of the difference between what the two taxes would have generated on the same sales, not a projection of a $1 million monthly budget deficit.
The analysis states that Connecticut cannabis prices have been falling. Under the potency-based tax, it says, a decline in a product's retail price does not by itself reduce the tax collected on a given quantity of THC sold, while under the new system the tax is tied directly to taxable gross receipts. It states that maintaining cannabis-tax revenue will require enough growth in taxable gross receipts to offset both the new rate's initial revenue disadvantage and any later price declines.
The analysis states that the Social Equity and Innovation Account is not projected to absorb the initial reduction. Public Act 26-68 temporarily raises the account's share of cannabis-tax revenue from 65% to 70% for fiscal years 2027 and 2028 and lowers the General Fund's share from 10% to 5%, shielding the account from a net revenue loss in those two years. The analysis states that the Office of Fiscal Analysis projects the account will lose approximately $1.6 million annually beginning in fiscal year 2029, with the loss rising to about $1.7 million thereafter.
For municipalities, the analysis states that Public Act 26-68 leaves the 3% municipal cannabis tax unchanged and that the Office of Fiscal Analysis identifies no direct municipal fiscal impact from the state tax change. It notes that the municipal tax is itself based on gross receipts, so municipal collections would eventually be affected if prices and taxable sales decline, and states that municipalities are insulated from the rate change rather than from the market conditions that determine their tax base.
Rinaldi writes that he raised the broader problem in a Jan. 26 Hartford Courant op-ed, writing that if Connecticut was serious about turning its "currently moribund cannabis industry into the significant revenue engine it was promised to be," the state needed a "hard reset" and "a hopeful, holistic revisiting of cannabis regulation as a whole." The analysis states that the 2026 legislative session changed the tax structure and made other changes to cannabis policy but did not resolve many of the broader regulatory and market problems. It states that the unanswered question is how much more revenue the state could lose if the market does not grow fast enough to offset continuing price declines.
- The source does not state the assumptions behind the Office of Fiscal Analysis projections for future cannabis-price compression, sales-volume growth or the elasticity between the two.
- The source does not reconcile Rinaldi's estimated monthly difference of about $1 million for January through May 2026 with the Office of Fiscal Analysis projections of $1.9 million to $2.2 million in annual revenue reduction.
- The source does not state how much additional taxable sales volume would be needed to offset continuing price declines under the new gross-receipts tax.
- The source does not state the total cannabis tax revenue collected by Connecticut, the dollar size of the Social Equity and Innovation Account, or municipal cannabis tax collections.
- The source does not state whether Rinaldi's calculations of revenue under either tax were independently reviewed or released by a state agency.
- The source does not state the legislature's rationale for replacing the THC-based tax or for temporarily changing the distribution formula.
Read the original at CT Mirror