Quick Answer
If you sell recreational cannabis online, you're likely required to charge a state or provincial excise tax on top of regular sales tax. Rates range from 6% to over 25% depending on where your customer is, and some states tier the rate by THC potency. Shopify doesn't handle cannabis excise taxes natively. Magical Fees lets you add the correct excise amount as a separate, clearly labeled line item at checkout — by state, by product type, automatically.
What You Need to Know About Cannabis Excise Taxes
Twenty-four U.S. states have legalized recreational cannabis, and almost all of them impose excise taxes on retail sales. Canada charges a federal cannabis excise duty plus provincial markups. These taxes are layered on top of standard sales tax, and the structures vary dramatically.
U.S. state examples
- Arizona — 16% excise at retail (plus 5.6% state sales tax)
- California — 15% excise at retail (reduced from 19% in October 2025)
- Colorado — 15% wholesale excise + 15% retail excise (effective total can exceed 30%)
- Connecticut — Per-milligram THC tax ($0.00625–$0.0275 per mg depending on product type)
- Illinois — 10–25% excise tiered by THC content (10% for ≤35% THC, 25% for >35% THC)
- Maryland — 9% excise at retail
- Massachusetts — 10.75% excise + 6.25% sales tax (plus local option up to 3%)
- Michigan — 10% excise + 6% sales tax
- Oregon — 17% retail excise (no state sales tax in Oregon)
Canadian federal and provincial
Canada imposes a federal cannabis excise duty of $1 per gram or 10% of the dutiable amount, whichever is higher. On top of that, each province applies its own markup — Ontario, Alberta, and British Columbia each set rates through their provincial cannabis authorities.
For detailed rate tables, see the Tax Foundation's state-by-state reference and CRA's cannabis excise guidance.
Why This Is Hard to Do Natively on Shopify
Cannabis excise taxes are different from standard sales tax. They're a separate line item with their own rates, they often vary by product type or potency, and they stack on top of regular tax. Shopify's built-in tax engine doesn't handle this.
The workarounds you've probably considered:
- Baking excise into product prices. Your prices look inflated compared to competitors who show excise separately. And you lose the clear line-item breakdown that regulators and your accountant expect.
- Using a generic tax override. This mixes excise with sales tax in your reports, making reconciliation a headache when you file.
- Manual order edits. Doesn't scale. One missed edit and you're out of compliance.
How to Set Up Cannabis Excise Taxes With Magical Fees
Magical Fees gives you the control you need — percentage-based fees that vary by state and product type, shown as a clear line item at checkout.
1. Organize your products by tax treatment
If your state uses a flat percentage (like Arizona's 16%), you can target all cannabis products with one rule. If your state tiers by THC potency (like Illinois or Connecticut), group your products into collections or tag them by tier — for example, "Cannabis ≤35% THC" and "Cannabis >35% THC."
2. Create excise tax fee rules
In Magical Fees, create a percentage-based fee for each rate you need. Name it clearly — "State Cannabis Excise Tax" or "Illinois Cannabis Excise (25%)" — so your customers understand the charge.
Set the percentage to match your state's rate. Target the rule to the appropriate product collection or tag.
3. Add location conditions
Add a location condition to each rule so it only applies to orders shipping to the relevant state or province. Your Arizona rule charges 16% on Arizona orders. Your Michigan rule charges 10% on Michigan orders. Customers in states without legal cannabis sales won't see the charge.
4. Handle tiered rates (if applicable)
For states like Illinois that tier by THC content, create separate rules for each tier — one at 10% targeting your low-THC collection, one at 25% targeting your high-THC collection. Same state location condition on both.
5. Test your setup
Place test orders to states where the excise applies. Verify that the excise appears as a separate line item, the percentage is correct, it targets the right products, and it doesn't show up for exempt states.
Common Questions
Is cannabis excise tax the same as sales tax?
No. Cannabis excise is a separate tax layered on top of regular state and local sales tax. In most states, you collect both. Magical Fees handles the excise portion; Shopify's built-in tax engine handles standard sales tax.
What about federal taxes?
There is no federal excise tax on cannabis in the U.S. However, federal tax code Section 280E still applies to cannabis businesses, preventing deduction of most business expenses. In Canada, the federal excise duty is mandatory and separate from provincial markups.
Do I need separate rules for delivery vs pickup?
Check your state's rules. In most states, the excise applies regardless of fulfillment method. But some states have different rules for delivery services vs retail dispensaries. If you operate both, verify with your state cannabis authority.
Further Reading
Always label deposits separately for compliance
Display bottle deposit fees as a clearly labeled, separate line item at checkout and on receipts. This meets regulatory transparency requirements, builds customer trust by showing exactly what they're paying, and makes it significantly easier to track deposits for reporting and audits. Use a clear label like "Bottle deposit" or "Container deposit (CRV)" so customers immediately understand the charge.
“Magical Fees is the only fee app that allows you to apply a fee based on a specific or individual state/province situation. All the other apps we tested only allow 'Location' (the entire country) which is a major limitation. The solution Magical Fees applies during the Cart to Checkout process is very smart and not a hassle. Very easy app to setup and the support was great.”