Ohio just approved a statewide vote on adult-use cannabis on November’s upcoming ballot, and it’s looking like business would be booming should it be approved.
A study published earlier this month by researchers at Ohio State University suggests that Ohio could generate between $275 million and $403 million by the fifth year of operations in adult-use tax revenue, should voters move to legalize.
Establishing a Baseline
The study, titled “What Tax Revenues Should Ohioans Expect If Ohio Legalizes Adult-Use Cannabis,” used cannabis tax data from Michigan fiscal year 2021 as the main point of reference to estimate Ohio’s potential cannabis tax revenue gains, as the two states share “demographic and tax structure similarities.”
Because Ohio does not have an established adult-use industry or tax structure, all tax revenue projections are speculative and based on variables and assumptions that could shift, researchers prefaced, calling them “best-guess” projections.
It also used data from Illinois, given its proximity to Ohio and similar population size, along with Nevada, Oregon, Washington and Colorado, “selected to provide tax revenue trends from more mature cannabis markets.”
The researchers issued their first report estimating possible tax revenues for the state in Spring 2022 and said they wanted to revisit the report given the recent ballot news.
Researchers used Michigan as a base for cannabis pricing as well. In 2021, Ohio medical dispensaries charged an average of 40% or more than Michigan dispensaries, increasing to over 120% price differential in 2022 largely because of falling Michigan prices.
Projections for Ohio’s Budding Recreational Market
“Consequently, we have thus prepared a set of tax revenue estimates assuming price parity, as well as assuming 10% and 20% higher prices relative to Michigan to account for different possible Ohio pricing scenarios following legalization,” the report notes.
Given the baselines, researchers used Michigan data and applied a conservative rate of diminishing retail sales under three models to establish their $275 million and $403 million range.
They also noted that the estimates don’t include collections if additional local sales don’t include any collection of additional local sales taxes or any other taxes that cannabis businesses and employees may pay, like state Commercial Activity Tax, local property taxes or state and local income taxes. It also doesn’t include fees collected from cannabis business license applicants or license holders, which can be structured in a way to provide additional significant benefits to Ohio’s expected cannabis revenue.
Authors also note that, regardless of the final tax structure, cannabis tax revenue only makes up a small proportion of the overall state revenue collection in legalization states. They cite that more mature cannabis markets have seen a tax revenue proportion from cannabis markets hovering between 1-2% of the total state revenue.
“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,” the study concludes. “But the amount of tax revenue collected would likely still represent a small percentage of Ohio’s $60+ billion annual budget.”
Voters, Advocates Prepare for 2023 Vote
Last week, advocacy group Coalition to Regulation Marijuana Like Alcohol (CRMA) approved their adult-use cannabis initiative, which would legalize cultivation, manufacturing, testing and sales for people over 21. Prospects are promising, as a recent poll conducted by Suffolk University found that 59% of voters support legalizing cannabis possession and sales.
Ohio voters recently rejected Issue 1, which was a constitutional change proposal that would have made it more difficult to enact constitutional amendments. Experts predict Issue 1’s failure will result in increased voter turnout, especially surrounding a proposed ballot measure around abortion rights heading to the polls.
CRMA spokesperson Tom Haren suggested the potential for a higher turnout could work to the cannabis initiative’s favor.
“I think people who go out to vote in November are likely to support us no matter what they vote on the abortion amendment,” said Haren. “I think we will be popular among those who vote yes (on the abortion rights amendment) and we’re going to be popular among those who vote no (on the abortion rights amendment) as well.”
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