Floridians get to free the weed at the ballot box Nov. 5. What’s at stake? Scores of weed arrests, and at least $200 million per year in tax revenue for a massive, newly-legal economy.  Also, tens of millions of dollars more in criminal justice savings from fewer arrests and prison sentences.  That $200 million figure […]

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The federal war on marijuana has entered the end game.

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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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You get two pounds and four mature plants at home. Huzzah.

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On March 7, the Hawaii Senate voted to pass an adult-use cannabis bill in a 22-3 vote. Also referred to as SB669 SD2, the bill would set up a framework for cultivation, manufacturing, sales, and taxes. It would allow residents to possess up to 30 grams, cultivate up to six plants for personal use, and also decriminalize small amounts of cannabis as well.

The bill was first introduced by Sen. Joy A. San Buenaventura, Sen. Stanley Chang, Sen. Jarrett Keohokalole, and Sen. Angus LK McKelvey on Jan. 20, and has consistently worked through numerous committee hearings. Sen. Keohokalole chairs the Senate Committee on Commerce and Consumer Protection, where amendments were addressed, including establishing penalties for unlicensed cultivation, protecting employers who want to prohibit employee cannabis use, preventing any cannabis business from opening within 1,000 feet of youth-related areas, and other changes to address cannabis licensing that does not allow monopolies to develop. 

“Today marks a significant step forward in the legalization of adult-use cannabis in Hawaiʻi. These amendments are reflective of the Senate’s commitment to ensuring a fair and well-regulated cannabis market that provides safe access to both adult consumers and existing medical patients,” said Keohokalole. “If legalization of adult-use cannabis is something that is supported by the Governor, we hope his administration, which has thus far opposed every proposal to legalize adult-use cannabis, will work with us to bring this to fruition.” 

After passing in the Senate with amendments, it was sent to the House for consideration on the same day.

On Jan. 11, a different adult-use cannabis bill, HB-237, was introduced by Rep. Hawaii Rep. Jeanné Kapela. This bill would establish a regulatory framework for legalization as well, but would also include language to allow out-of-state patients to benefit from medical cannabis law, and would make medical cannabis sales exempt from being charged with the general excise tax. Additionally, Kapela introduced HB-283, which would prohibit employers from discriminating against potential hires or current employees for their medical cannabis consumption. Neither HB-237 and HB-238 have progressed past hearings, which were held in late January.

A recent poll published by the Hawaii Cannabis Industry Association at the end of January found that 86% of adult Hawaiian residents are in favor of legalizing adult-use cannabis, with only 9% in opposition, and 5% saying that they don’t know. The poll also found that adult-use was slightly more popular than medical, in a 45% to 41% comparison. Overall, the state could collect up to $81.7 million in taxes and $423 million in gross revenue if cannabis legalization was passed. 

An additional report from the Dual Use Cannabis Task Force also published its findings in January, and shared that cannabis tax revenue could reach between $34 million to $53 million. 

Kapela focused on the data provided by that task force report to create the bill she introduced. “We all know, and Hawaii’s people know, that it is high time to legalize recreational cannabis use for adults in Hawaii. This year we stand on the precipice of history,” Kapela said. “Following the recommendations of a task force devoted to addressing cannabis policy, we now have a roadmap for legalizing recreational cannabis in our islands.”

Aside from the pace of support for cannabis legalization from legislators, efforts to legalize therapeutic psilocybin have also become popular. One such bill, SB-1454, was introduced in January, and unanimously passed in the Senate Committee on Health and Human Services on Feb. 6. It aims to establish regulations to create a “therapeutic psilocybin working group” to examine the medical benefits of psilocybin for conditions such as post-traumatic stress disorder, depression, anxiety, and end-of-life psychological distress.

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Pot taxes rise in California. Mushrooms decriminalized in Colorado.

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The US grew 554 more metric tons of adult-use cannabis in the past year than in 2021. Still, the crop’s value fell by $1 billion.

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Admittedly, since recreational cannabis remains illegal in Hawaii—with decriminalization only happening in 2019—such a high number isn’t very shocking. Still, those legally operating in Hawaii’s cannabis industry claim those numbers are only so high due to poor “market structure and regulation.”

When it comes to why people choose black market cannabis, one of the most common responses is high taxes. As the industry stands now, Hawaii’s cannabis market is worth about $240 million. With estimates that it could climb to $354 million upon recreational legalization.

That being said, this recent report claims such numbers are modest compared to the $8 billion a year of tax collections the state already sees. Therefore, beyond the fact that there’s no financial incentive to raise taxes, there may be a legal incentive to lower taxes.

Some responders to the report believe that, if legalized, Hawaii should avoid “burdensome levels of regulation and taxation” in order to overshadow the state’s illicit market.

Still, this black market issue likely goes beyond taxes. Currently, there are only 8 legal medical dispensaries across the state. All of which have struggled to turn a profit.

According to Randy Gonce, executive director of the Hawaii Cannabis Industry Association, only 3 of these dispensaries are breaking even. And none of them are paying a return on investors.

Gonce continued: “On paper, they’re not successful businesses. You’re working on a very limited consumer base with heavy, heavy regulations. Your tax is really, really high, you can’t write your taxes off… at the federal level – it’s just a hard industry to be in.”

So, what can be done to get more people to turn to the state’s medical program?

Breaking Down Hawaii’s Medical Cannabis Program

While medical cannabis has been legal in Hawaii since 2000, it hasn’t progressed significantly in the last two decades.

One of the biggest issues is its list of qualifying conditions is extremely limited, with only 15 ailments acceptable for a prescription. Even still, the severity of these conditions plays a major role in whether or not a doctor will even recommend marijuana as a remedy.

However, an even bigger issue is the lack of access to cannabis. Currently, Hawaii has just under 35,000 registered medical patients. As mentioned, all those patients are limited to the eight dispensaries across the state which are limited to specific islands. In turn, medical patients on Lanai or Molokai have no direct access to medical cannabis.

The cherry on top of these issues is the 4.5% General Excise Tax (GET) attached to all marijuana products. Admittedly, this number is lower in other parts of the country. For example, in California, there’s a 15% excise tax on all retail cannabis products.

But since access to business licensing in California is more attainable, we’ve seen more farms growing products. In turn, this has driven down prices—allowing for an overall more affordable product for consumers.

In Hawaii, on the other hand, cultivation licenses start at a $75,000 fee—with a $50,000 renewal fee every year. Since the market has been around for some time and it’s obvious that there’s little profit within the industry, it’s a no-brainer not to invest in such ridiculous fees.

With Lack of Production, Hawaiians are Importing Cannabis

So, how do you circumvent the problems of Hawaii’s medical industry?

An easy answer would be recreational legalization in order to broaden the consumer base. However, this may prove more difficult than it seems. For one, Hawaiian voters are split nearly 50/50 on the issue. Secondly, outgoing Gov. David Ige opposes recreational use, keeping lawmakers away from the topic over the last few years.

The upcoming midterms will play a significant role in how this issue is tackled in the next few years. With nominees Lt. Gov. Josh Green (D) supporting recreational legalization and Lt. Gov. James “Duke” Aiona (R) opposing it.

Still, even if legalized, chances are Hawaii’s market will continue to struggle. And this is simply due to the fact that the state’s industry is lacking in terms of production. In fact, most of the cannabis in Hawaii isn’t even grown within the state—it’s being shipped in from California.

With that said, it may be impossible for Hawaii to tackle the problem of the illicit market as the source of this issue is thousands of miles across the Pacific.

As a task force report states: “Illicit California cannabis is cheap and of relatively good quality. This market dynamic will not go away even if Hawaii opts to legalize adult use.”

In order to combat the issue immediately, Hawaii’s law enforcement has become more aggressive in prosecuting illegal operations. But even such aggressiveness hasn’t been able to stop growth. As the task force reported, the illicit market has gotten so large that the state’s already a part of the national cannabis market.

So, What Can Be Done Within Hawaii?

Ultimately, in order to start coming down on the black market, Hawaii needs to produce a more equitable legal market. As mentioned, the price of entry into the industry is ridiculously expensive—with capital investors even weary of such large financial incentives due to the lack of demand.

As Gonce says: “What we want to do is a very low barrier to entry, but still with certain things to keep the integrity of the business.” He furthered this by saying that groups should be monitored, cash flow should be tracked, and the government should be testing products for purity and potency.

However, these changes should only be implemented if they’re reducing prices for consumers. As of now, legal Hawaiian cannabis is 40% to 100% higher than that of the illegal market. To give an example, an ounce in a dispensary costs around $350 whereas the price drops to $250 in the illicit market.

In order to lower prices, production within the state needs to increase. And in order for an increase in production, the state desperately needs to make the market more accessible to newcomers.

As the report indicates: “issues related to the market structure and regulation result in high prices that are uncompetitive relative to the gray [illicit] market. Laws and regulations that limit scale, market size, competition, and specialization create an unfavorable market structure.”

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Cannabis excise taxes are squeezing Canada’s craft producers and their bottom line. Can you imagine if liquor was taxed by alcohol percentage?

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Relentless burglaries, high taxes drive legal pot biz out of its birthplace.

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