click to enlarge The proposal to legalize recreational marijuana in Ohio will be State Issue 2 in the Nov. 7 election. - Photo: Aphiwat chuangchoem, Pexels

Photo: Aphiwat chuangchoem, Pexels

The proposal to legalize recreational marijuana in Ohio will be State Issue 2 in the Nov. 7 election.

A recent Ohio State University Drug Enforcement and Policy Center study estimates the potential annual tax revenue from legalizing marijuana ranges from $276 million to $403 million in the fifth year of an operational cannabis market. 

Those projections could become reality if Ohioans vote to pass Issue 2, which would legalize and regulate the cultivation, manufacturing, testing and the sale of marijuana to Ohioans 21 and up. It would impose a 10% tax at the point of sale for each transaction and would also legalize home grow for Ohioans 21 and up with a limit of six plants per person and 12 plants per residence. 

“From an economics perspective, it’s added tax revenue, to new job creation, to new opportunities for Ohioans to own a small business within the industry,” said Tom Haren, spokesperson for the Coalition to Regulate Marijuana like Alcohol. “And then it also increases participation in the workforce.”

The money from legalizing adult-use cannabis would go into four buckets: 3% would go to general administrative costs, 25% would go to a substance abuse and addiction fund, 36% would go to a local host community fund to disperse the money to communities that have adult-use dispensaries and the remaining 36% goes into a social equity and jobs program fund. 

“We’re going to ensure that Ohioans don’t have to drive to Michigan and generate tax revenue to that state up north,” Haren said. “We want them generating that tax revenue right here in the Buckeye State.”

Putting the money in context

To put all this money into perspective, Ohio’s operating budget that DeWine OK’d for fiscal year 2024 is $86 billion — meaning the $403 million projections from the Ohio State study make up less than 1% of the state’s budget.

“It’s not something that would change the future of the state of Ohio in terms of revenue, but $400 million is nothing that should be sneezed at either,” said Jana Hrdinová, one of the authors of the study.

The amount of taxes collected is “highly dependent on what type of tax levels and structure would be adopted” if Issue 2 passes, according to the Ohio State study. 

“Whatever tax structure is adopted, our analysis suggests it is reasonable to predict that Ohio would collect hundreds of millions in annual cannabis tax revenues from a mature adult-use cannabis market,” according to the study.

Researchers Hrdinová and Dexter Ridgway published their first report estimating potential tax revenues Ohioans could see from legalizing marijuana in the spring of 2022 and they published their updated findings in August. 

“We actually do not know what will happen in the future, but if you look at all the numbers from the states that have legalized marijuana you can make an educated guess,” Hrdinová said. “We have modeled the numbers very conservatively in terms of the gross of the market as well as the pricing of the market.” 

The study looked at the tax revenue from six states that already legalized marijuana: Michigan, Illinois, Nevada, Oregon, Washington, and Colorado.

Adult-Use cannabis tax revenues for fiscal year 2022: 

  • Washington — $511,123,712
  • Illinois — $466,816,883
  • Colorado — $356,062,031
  • Michigan — $281,415,241
  • Oregon — $170,572,100
  • Nevada — $152,334,798

“Legalizing marijuana isn’t the type of economic impact we are looking for”

Sen. Mark Romanchuk, R-Ontario

Ohio Sen. Mark Romanchuk, R-Ontario, argues those kinds of estimates are rarely accurate. 

“Even assuming that that tax would generate that much revenue, we never talk about the cost to society,” he said. “I think it’s going to negatively affect people’s lives. … Legalizing marijuana isn’t the type of economic impact we are looking for. … There is a flip side to legalizing marijuana and that’s the part that will offset any economic impact it brings.”

Romanchuk worries legalizing marijuana would increase the black market. 

“You don’t really think that just because we legalized marijuana that the black market individuals will throw up their arms and leave the state,” Romanchuk said. 

Haren disagrees — citing the proposed 10% tax rate and product quality.

“We’re going to put the black market out of business,” he said. 

Romanchuk also worries legalizing marijuana would lead to more car accidents, something the opposition group has been touting, but another researcher from Drug Enforcement and Policy Center argues it’s a nuanced issue. 

The Republican is also concerned about overdose deaths. Ohio’s overdose death rate is 38.3 deaths out of every 100,000 residents — behind West Virginia’s 52.8 and Delaware’s 48, according to the National Center for Drug Abuse Statistics

“To me it doesn’t make sense,” Romanchuk said. “We are in a drug epidemic and it makes no sense to legalize, legitimize and make more widely available another addictive drug like marijuana.”

Tax rate

Michigan’s tax rate — a 10% excise tax on sales and a 6% standard sales tax — is very similar to the proposed tax rate in Issue 2, which would be a 10% excise tax on sales and a 5.75% state sales tax. 

“If you do have a lower tax rate, the state gets less money out of the product which can be seen as negative,” Hrdinová said. “If you set your tax rates higher, it might be more difficult to stamp out the illicit market.”

A higher tax rate means a higher price for consumers. 

Some states have a higher tax rate. Washington has a 37% excise tax on adult-use cannabis sales; Colorado has 15% wholesale and15% special retail; Oregon has 17% excise tax; and Nevada has 15% wholesale and 10% special retail, according to the Ohio State study. 

“It’s important that they be competitive on price, so that when consumers make financial decisions about where to buy their products, that they decide to purchase them from Ohio’s regulated program as opposed to a black market drug dealer, or driving up to Michigan,” Haren said.

This story was originally published by the Ohio Capital Journal and republished here with permission.