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New OSU report: Legal marijuana will generate about $350 million in annual tax revenue in Ohio

Estimated Revenue: $276 million to $404 million in Year 5

Report by Ohio State University Drug Enforcement and Policy Center

The Ohio State University Drug Enforcement and Policy Center estimates Ohio will receive additional $276 million to $404 million annual tax revenues from legal marijuana in the fifth year after legalization.

The estimates vary based on expected demand from marijuana and expected prices that consumers pay.  The middle estimate — based on cannabis prices being 10% higher than in Michigan and moderately slowing volume increases — puts expected tax revenue at $343.6 million in Year 5, after the legal cannabis market is past its start-up phase.

Ohio voters will decide on November 7 whether to legalize adult-use marijuana. The ballot measure, Issue 2, would allow possession of up to 2.5 ounces of cannabis by people 21 and older. A newly created Division of Cannabis Control would license marijuana sellers. Purchasers would pay state and local sales taxes, which range from 5.75% to 8% and average 7.25% on Ohio, plus a 10% cannabis tax.

OSU’s Drug Enforcement and Policy Center is based at the university’s Moritz College of Law. The full 11-page report can be read here or by clicking on the report below.

 

Tax revenue comparisons

The Drug Enforcement and Policy Center first looked at cannabis sales in select states.

And cannabis tax revenue in those states.

After adjusting for population, the center estimated Ohio tax revenues  would be $182 million in the second year of a legally operating marijuana market, if Ohio prices are the same as Michigan prices. If Ohio prices are higher than Michigan, tax revenue would $200.2 million in Year 2 if 10% higher and $218.4 million if 20% higher.  (The report did not estimate the value of Ohio marijuana sales, but, based on the tax revenue estimates, Ohio cannabis sales would be about $1 billion in Year 2, according to the revenue estimate model.)

Because new markets take a while to mature — stores to open, legal purchases to increase — Year 5 of the market’s operation is a good proxy for the long term revenue generation of legal marijuana under the proposed tax system.

These are estimated tax revenues if Ohio’s cannabis market grows slowly.

These are tax revenue estimates if Ohio’s marijuana market grows at an average rate.

And these are expected tax revenues if cannabis sales grow a bit faster than expected.

How will marijuana tax money be spent?

The sales tax portion will go to state and local governments to spend as they please. The state sales tax is 5.75%. Local sales tax varies — 2.25% in Cuyahoga County (Cleveland) and 1.5% in Scioto County (Portsmouth), for example.

The 10% marijuana tax would be dedicated to:

  • 36% to host community cannabis facilities fund.
  • 36% to cannabis social equity and jobs fund.
  • 25% to substance abuse and addiction fund.
  • 3% to division of cannabis control and tax commission fund.

The money for the host community funds will go to local governments that have dispensaries. 

The social equity fund will be spent according to a a long explanation in the law. 

The substance abuse fund can be used to treat problems with any drugs, including opiates.


The two-page summary of Issue 2 can be read here.

The complete 46-page proposed law can be read here

The 11-page Drug Enforcement and Policy Center report on estimated marijuana tax revenues can be read in this document:

Dennis Cauchon

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