Recreational pot in Ohio could generate hundreds of millions in taxes

In the second year as the program ramps up, excise taxes could range from $182 million to $218 million – on top of any local sales tax and increased taxes on income, property and commercial activities that result from an expansion beyond the state's current medical marijuana program, according to a report from the Drug Enforcement and Policy Center at OSU Moritz College of Law. The range of results depend on several factors including how competitive prices are with neighboring Michigan and the rate of sales growth.

"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 report said. "But the amount of tax revenue collected would likely still represent a small percentage of Ohio’s $60-plus billion annual budget."

Issue 2 on the ballot is citizen-initiated legislation to create an adult-use cannabis market subject to regulation by the Ohio Department of Commerce. The proposed law includes a 10% excise tax. Ohio's existing 5.75% sales tax and local taxes ranging from 0.25% to 2.25% also would apply – the combined sales tax in Franklin County is 7.5%. Researchers used only the state portion of sales taxes for projecting state revenue.

Several business groups have started to campaign against the measure, including the Ohio Manufacturers Association, Ohio Business Roundtable, Ohio Children’s Hospital Association and Ohio Adolescent Health Association, citing safety and workforce concerns. Public health and public safety associations also oppose it. The initiative was organized by the group Coalition to Regulate Marijuana Like Alcohol.

For the tax projections, Ohio State researchers Jana Hrdinová and Dexter Ridgway looked to states that already have adult use, focusing mainly on Michigan and Illinois for proximity and similar population size, as well as the revenue growth trends from more mature markets in Nevada, Oregon, Washington and Colorado.

In the first two years, marijuana sales tend to grow by multiples as licensees come online and add first-time customers, then taper off, so researchers projected scenarios with different growth patterns. They also calculated taxes based on Ohio dispensaries pricing products on par with Michigan or up to 20% higher.

"Since the 2023 Ohio ballot initiative does not include caps on the number of producers, we should anticipate that tax revenue from the cannabis market might eventually dip as the market matures," according to the report.

Lawmakers also could later change parameters such as the excise tax rate.

For comparison, casinos generated about $300 million in state revenue in fiscal 2021, the report said.