Watchdog: Illinois' early pot tax revenues outpacing other states

By Jake Griffin

Tax revenue from recreational marijuana sales in Illinois is outpacing what several other states received in the early months of legalization.

On a per capita basis, Illinois is in line to receive more tax revenue from recreational marijuana sales during its first two months of legalization than California, Colorado, Michigan and Washington took in, according to a Daily Herald analysis of those early-adopting states' marijuana tax and sales tax revenue.

"The state's decision to really go for it is the right decision," said Ralph Martire, executive director of the bipartisan Chicago-based Center for Tax and Budget Accountability. "If you're going to do it, you should just do it."

Unlike other states that dipped their toes into the legalized marijuana waters by slowly rolling out licenses, Illinois had 45 licensed dispensaries ready to go Jan. 1, which resulted in millions of dollars in sales in the first day alone. More dispensaries have been granted licenses since then.

While marijuana tax and sales tax figures for the second month of legalized sales in Illinois are still weeks away from being announced, the state is on pace to receive $6.5 million in marijuana taxes and another $2.8 million in sales taxes based on first-month tax rates applied to the $34.8 million in sales from February. That could mean almost $20 million in combined marijuana and sales taxes during the first two months of legalized sales.

State budget officials have said they were being conservative when they estimated $28 million in marijuana tax and sales tax revenue from legalized sales in this fiscal year, which ends June 30. The state might even surpass the $34 million originally forecast before the bill was passed. The state budgeted $127 million in marijuana-related taxes for the 2021 fiscal year.

Toi Hutchinson, cannabis control senior adviser to Gov. J.B. Pritzker, acknowledged there might have been an advantage to not going first.

"The only way to kind of see if this amazing experiment works is to literally go for it and take all the information we got from other states and all the things legislators in those states said they wished they could have done and put it in practice," she said. "It's been amazing to see."

The state could see as much as $1.56 per resident in tax revenue in the first two months of sales, a higher rate of return than many of the early-adopting states. Colorado, the first state to legalize recreational marijuana sales in 2014, received $1.42 per person in combined marijuana taxes and sales taxes during the first two months of legalization there, according to the analysis. California, Michigan and Washington all received less than $1 per capita in early tax revenue returns when legalization was introduced in those states.

Martire said the success of legalization in Illinois shows "there are a lot of recreational users who are middle income and above who prefer to have a way to buy legally," and don't mind paying a little extra.

"The higher-than-average tax rates in Illinois did not turn off buyers," said Eli McVey, research manager for Marijuana Business Daily, a trade publication catering to growers and sellers. "But I don't think it's going to grow as much as some other states because of the cap put on licenses. When you look two to three years from now, I don't think they'll be as strong as they are now because of that."

McVey called the limits on licenses a "recipe" to maintain artificially inflated prices and an opportunity to sustain the "illicit" drug market.

State Rep. Kelly Cassidy, a Chicago Democrat who was one of the key figures in passing the legalization bill, acknowledged the state might eventually have to lower the tax rates.

"We saw that other states had to go back and lower taxes," she said. "It's too soon to really tell if we hit the sweet spot with the tax rate since local tax rates haven't been added on yet."

Hutchinson said the growth of recreational use sales in Illinois is fluid. The next step is to begin licensing retail establishments in commercial areas to improve accessibility and assist entrepreneurship. Dozens more retailers could be online throughout the state within a year.

"What we've seen tells me there's a lot of room to grow," she said. "But it's a delicate balance."

Revenue generated from the state's marijuana taxes feed into multiple pots.

The state's general fund, the majority of the state's operations, gets 35%.

Another 25% goes to a special economic development program targeting communities most affected by the criminalization of marijuana. Hutchinson said grants for those funds are expected to begin distribution in June, but coronavirus-related shutdowns might delay that.

The remaining funds will be split between mental health and addiction programs, paying down the state's debt, law enforcement and educational outreach.

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Marijuana taxesIllinois' projected take in the first two months of sales compared to four other states.

Illinois: $19,772,940

California*: $35,350,000

Colorado: $7,612,331

Washington: $3,661,700

Michigan: $2,938,192

(*California is an average)

Source: State marijuana oversight agencies

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