Illinois Cannabis Sales Rise, Taxes Fall

The cannabis business faces unique forces, from national politics to local market dynamics.

This story was republished with permission from Crain’s Chicago Business and written by John Pletz

Illinois collected 3% less in marijuana taxes during the fiscal year ended June 30 than it did a year earlier, even though recreational cannabis sales grew 5% during that period.

Illinois collected $451.9 million in cannabis taxes in the most recent fiscal year, compared with $466.8 million the previous year. Recreational cannabis sales during that time rose to $1.59 billion from $1.50 billion.

It’s one more example of the growing pains of a young industry that’s being buffeted by both broader economic headwinds as well as the unique forces within the cannabis business — from national politics and local market dynamics.

The Illinois Department of Revenue didn’t have an explanation for the decline, but the state’s tax system is complicated when it comes to weed. The retail tax varies, depending on the amount of THC, from 10% to 25%. It also charges a 7% tax at the wholesale level.

“There are myriad factors at play, so it is difficult to speculate,” the Department of Revenue said. Among them are shifts in product preferences by customers to products with lower taxes and changes in wholesale prices.

Illinois has some of the highest taxes and highest prices for cannabis. The state ranked second last year in total taxes collected from industry.

But it hasn’t been immune from an industrywide decline in marijuana prices. Wholesale prices fell by one-third between July 2022 and June 2023, according to research firm Cannabis Benchmarks. Retail prices also have been under pressure, and some customers have traded down to lower-priced products.

“Revenues from cannabis taxes declined because of various factors, including the price pressure and reduced out-of-state purchases,” says Lucy Dadayan, a researcher at the Urban Institute. “Cannabis prices went down substantially, not just in Illinois, but in other states as well.”

No matter what the cause of the decline in tax collections, it means slightly less revenue — about $111 million each — went to the state’s general fund and community-reinvestment programs. A year earlier, each received $115 million, according to state data.

Cannabis sales are starting to pick up, however, as more newly licensed stores open their doors, which could boost tax revenue in the current fiscal year. Thirty-nine new stores have opened since the state issued 192 new licenses last year.

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