Some policymakers have suggested that cannabis legalization could provide tax relief by generating new tax revenues; however, new evidence from New Jersey municipalities shows that local cannabis taxes have not meaningfully reduced local property tax burdens.
The average property tax bill in New Jersey reached about $10,570 in 2025—the highest in the nation. Given these high property tax burdens, policymakers and residents alike have been interested in whether new revenue sources could help offset local property taxes. One potential source is local cannabis taxes. After voters approved recreational cannabis legalization in 2020, state law allowed municipalities to permit cannabis businesses and impose local transfer taxes and licensing fees on those establishments, creating a new stream of local revenue.
To examine whether these revenues affect local property tax burdens, we analyze data from New Jersey municipalities between 2016 and 2024. We collected detailed information on local cannabis tax revenues from municipal budgets and financial statements and combined these data with publicly available information on effective property tax rates from the New Jersey Division of Taxation. This municipality-level dataset allows us to examine whether increases in cannabis tax revenues are associated with changes in local property tax rates over time.
So, do cannabis tax revenues reduce property taxes in New Jersey? Our analysis suggests the answer is no.
Based on a new working paper by myself, Prakash Kandel, and Giovi Romero Sarubbi of Rutgers University–Camden, we find little evidence that cannabis revenues reduce reliance on property taxes. On average, a one dollar increase in local cannabis tax revenue per capita is associated with only about a 0.03 percent change in the typical municipal property tax rate, indicating that even sizable increases in cannabis revenues correspond to only trivial changes in property tax burdens.
Rather than lowering property tax rates, municipalities appear to incorporate cannabis revenues into their broader fiscal systems alongside existing revenue sources. Several factors may help explain this pattern. Because cannabis revenues are relatively new and uncertain, municipalities may be reluctant to reduce reliance on property taxes, which remain the most stable and predictable source of local government revenue. In addition, cannabis taxes are embedded in retail transactions and are less visible to residents than property taxes, which may limit political pressure to use them for tax relief.
Policy Implications for New Jersey:
- Cannabis taxes are unlikely to provide meaningful property tax relief in the short run.
- Even substantial increases in cannabis revenues do not translate into noticeable reductions in property tax burdens.
- Cannabis revenues primarily diversify local revenue systems.
- Municipalities appear to integrate cannabis revenues into their existing budgets rather than using them to offset property tax reliance.
- Revenue expectations should remain modest.
- While cannabis taxes provide a new fiscal resource for municipalities, they remain small relative to the scale of local government budgets and property tax revenues.
As New Jersey’s cannabis market continues to develop, future research can examine whether these fiscal patterns change as cannabis revenues grow and become more predictable over time.