What would Recreational Marijuana legalization do for Pennsylvania tax revenue?
Seven years after Pennsylvania legalized marijuana for medical use, lawmakers are debating whether to allow recreational use — and what that would look like.
It has created quite a buzz in the evolving industry.
“Pennsylvania has a lot of market potential,” said Brendan Mitchel- Chesebro, a marketing content manager for BDSA, a Colorado-based cannabis industry consulting firm. “They’ve seen really strong patient growth in the medical-only area. They’ve seen a strong brand landscape develop. And that set the stage well for recreational to start. Retail availability is one of the big things that has limited other markets once they’ve actually turned on adult use in the past.”
State Rep. Dan Frankel, D-Squirrel Hill, last week told a House subcommittee on health lawmakers can take cues from other states that have made the leap in legalizing recreational marijuana.
“Many of us want the same thing. We want products we sell to be tested and safe,” said Frankel, noting opponents of legalization have “legitimate concerns for health and safety.”
“We’d like to see our economy benefit from legal sales rather than illegal sales,” said Frankel, chairman of the health subcommittee.
Steven M. Schain, principal at Philadelphia-based law firm Smart Counsel LLC, said when it comes to recreational markets, the cannabis is still the same product as medical marijuana — with a different tax on it.
That tax windfall is an incentive for states looking to generate revenue. Many of Pennsylvania’s neighbors already allow recreational, or adult use — New York, New Jersey, Maryland and Delaware. Michigan, which is two states away, also has legalized medical and recreational marijuana.
Ohio voters will decide Tuesday whether to allow recreational use.
“The terminology of ‘adult use’ and ‘medical marijuana’ are essentially meaningless. It’s the same product. It’s just whether someone has a card or not,” said Schain, who teaches Cannabis Law at Stockton University in New Jersey. He serves on Pennsylvania, Washington state, Utah and Philadelphia County administrative committees charged with drafting and revising state and local cannabis related regulations.
“However, adult use is taxed while medical is not. And adult use often has a state fee and a hosting fee,” he said.
“There are 12.8 million people in Pennsylvania,” Schain said. “We’ve only seen the tip of the iceberg. Once adult use programs are introduced, the legal use will triple.”
Kim Rivers, CEO of Florida-based marijuana company Trulieve, said in an August earnings call they expect the adult-use policies in Maryland, New Jersey and New York to spark similar laws in Pennsylvania.
Trulieve is one of the nation’s largest marijuana retailers with 186 dispensaries, 20 of which are within the Keystone State, including Cranberry, Downtown Pittsburgh, the North Shore, Washington, Whitehall and Zelienople.
If Ohio approves recreational use, Rivers estimates, the Buckeye State could reach $2 billion in annual sales. Trulieve opened its first medical dispensary in July in Ohio, where there are 370,000 registered medical patients.
Should Pennsylvania follow suit, Trulieve expects more growth.
“With almost 13 million residents, we believe the Pennsylvania market will reach over $4 billion in annual sales with adult-use consumption,” Rivers said.
She pointed to Maryland, where recreational sales launched this summer.
“As expected, we realized a meaningful increase in traffic and sales at dispensaries, alongside an uptick in our wholesale business,” Rivers said. “Traffic increased 200%, and sales per dispensary increased 150% during the first month of recreational sales.”
State Rep. Kathy Rapp, R-Warren, opposes legalization. She said during a Nov. 1 House hearing the potential revenue for the state doesn’t mitigate the risks for the public.
“The danger for our families, and the risk of putting more citizens in the mental health system, I believe, far outweighs — I don’t really see any benefits to legalization,” Rapp said.
Rep. Rick Krajewski, D-Philadelphia, the chairman of the House health care subcommittee, said legalization “is not just about removing restrictions. It’s about setting the groundwork for a whole new industry, while also addressing the past traumas and impacts of the criminalization of cannabis.”
Billion-dollar market
Meanwhile, lower prices are hitting the market. That’s good for consumers. But companies aren’t happy.
Pennsylvania’s cannabis market broke the billion-dollar mark in 2021, when it saw an estimated $1.2 billion in sales that year, according to BDSA. But oversupply is dragging down prices.
“Pennsylvania also had a lot of price compression, which has been a story across the whole industry,” said BDSA’s Mitchel-Chesebro. “Pennsylvania actually saw sales decline for the first time in 2022 with total legal sales dropping to $1.1 billion.”
BDSA is expecting the market to take a slight haircut this year, forecasting a decline of 4.3% to just under $1.1 billion in sales for 2023.
That could change if recreational use is legalized.
“Because it’s a medical-only market, they have a captive consumer base. It’s still growing, but it hasn’t kept pace with the amount of cannabis that’s actually just being produced,” Mitchel-Chesebro said.
BDSA expects if recreational cannabis is allowed, Pennsylvania could see $475 million in adult-use sales in 2025, bringing all sales to $1.38 billion that year.
Pittsburgh Mayor Ed Gainey has been an outspoken supporter of legalization and justice reform. He sponsored decriminalization bills during his time in the Pennsylvania House.
“I believe it’s time to move forward in the name of justice,” Gainey told the Trib on Friday. “We need to talk about what we can do from a social aspect for those who have been incarcerated because of marijuana.”
He added the tax revenue from cannabis sales could be an important boost for the state.
“In addition,” he said, “a lot of doctors said they would like to prescribe marijuana, which has been done for patients who can use that instead of taking opioids.”
