What's Next for Adult-Use Cannabis in Ohio after Issue 2 Approval?

The law goes into effect in one month, but it will still be several months before adult-use product is available.

This story was republished with permission from Crain’s Cleveland and written by Jeremy Nobile

With the ratification of Issue 2 on Tuesday, Nov. 7, Ohio is the 24th state in the country—plus Washington D.C.—to legalize recreational marijuana despite a lingering overhang of federal prohibition.

According to election results posted by Ohio Secretary of State Frank LaRose, “Yes” was hovering around 56.3% while “No” was around 43.7% with around 3.5 million votes tabulated as of 11 p.m. Tuesday night.

The law goes into effect in 30 days.

In a statement released after the vote was called, Matthew Schweich, executive director of the Marijuana Policy Project said, “This is a great day for Ohio, which now joins the growing number of conservative-leaning states that have ended the injustice of cannabis prohibition.”

While Ohio’s medical marijuana program remains in place, the most marijuana that adults 21 and older may purchase or possess at one time under the new adult-use program is 2.5 ounces of flower and 15 grams of extracts, according to the statute approved by voters.

The law also allows adults 21 and older to grow cannabis at home with up to six plants per person or 12 plants total per household, regardless of the number of adults living there.

When Will Recreational Marijuana be Available?

While the law goes into effect a month after the vote, it’ll still be several months more before of-age citizens can buy legal marijuana at an Ohio dispensary.

The law calls for the creation of a Division of Cannabis Control—something that lawmakers previously agreed to have in place by the end of this year regardless of the status of Issue 2—which will serve as the industry’s primary regulator.

Among many things, that agency, housed within the Ohio Department of Commerce, will oversee rec-related licensing for cultivators, processors, dispensaries, testing labs and their affiliated employees.

Although existing medical marijuana companies in the state will have a leg up in acquiring adult-use licenses, they still need those in hand before serving the general public.

Establishing rules for issuing those licenses and actually awarding them is expected to take several months to work through.

What Can Opponents of Issue 2 Do Now?

Clouding the actual rollout of the adult-use program is the potential for some state politicians to edit or possibly even repeal the rec marijuana law. While some conservative lawmakers have indicated they might do one or the other, what plays out there is to be seen.

“The immediate optics (of repealing a law passed by voters) may be enough to keep people from wanting to push back that much,” Douglas Berman, executive director of Ohio State University’s Drug Enforcement and Policy Center, previously told Crain’s. “Some lawmakers thinking in longer terms might say, in a sense, let’s cut our losses. If the state wanted to tweak aspects of the law or regulate (the industry) to death, so to speak, it could have the means to do that. And that may seem less politically misguided than a complete repeal.”

Industry Jolt

The advent of adult-use marijuana could, naturally, be a boon for the existing legal cannabis industry, particularly at a time when many operators are grappling with a down market.

Today, Ohio’s medical cannabis industry encompasses 37 cultivators, 44 processors/product manufacturers and 107 dispensaries.

But those operators have been underwhelmed with a customer base of about 185,000 active patients, or just 1.5% of the state’s population of approximately 12 million.

According to Statista, about 75% of Ohioans are age 20 or older. Therefore, nearly three-quarters of the state’s residents could be potential marijuana consumers with adult-use laws in place.

“We expect an adult-use market to double demand in its first year,” Andy Rayburn, CEO of Buckeye Relief, a vertically integrated marijuana company based in Eastlake, told Crain’s this fall. “We expect a significant part of that new demand to come from two areas: the Ohio illegal market and tens of thousands of Ohio residents who drive to Michigan to purchase products every month.”

“I expect a significant amount of traffic from Kentucky, Indiana, Pennsylvania and West Virginia,” added Jared Maloof, CEO of Standard Wellness, a multistate operator (MSO) headquartered in Northeast Ohio. “I think we will see either medical patients or consumers in general coming from those border cities into Ohio to buy products. And that’s why I’m thinking that three times our current revenue will be a conservative estimate.”

Boosts to Sales, Taxes

Rec products in Ohio will be charged sales tax plus a 10% excise tax. Medical products are only subject to sales tax, which creates a financial incentive for medical patients to continue to be registered with the state.

According to Ohio State University’s Drug Enforcement and Policy Center, taxes and fees related to the medical marijuana program have generated approximately $183.33 million for state and local government entities as of March 2023.

In year five of an adult-use program, DEPC estimates that Ohio could see approximately $276 million to $404 million in additional annual tax revenues.

Meanwhile, cannabis research firm New Frontier Data projects that rec sales in the state could total $2.86 billion by 2030. Those projections assume that 2025 will be the first full calendar year for rec sales.

To put that in context, since medical sales commenced in January 2019, there has been $1.53 billion in marijuana products sold through Oct. 30, according to state data.

Sales were slowest in 2019 as the industry began to blossom. There was just $54 million in medical marijuana sales that year. That means the state has averaged approximately $369 million in medical sales annually over a bit less than the last four years.

With the potentially significant boost that rec could bring existing cannabis companies, it’s of little surprise that industry stakeholders have provided about 52% of the $6 million in financial contributions that have been collected by the CRMLA, according to a Crain’s analysis of campaign contributions.

How We Got Here

The state’s road to recreational marijuana has been a long one.

Ohioans previously voted on a proposed marijuana in 2015 via that year’s ill-fated Issue 3.

That measure stood to legalize both medical and recreational marijuana programs. However, it would’ve also written into the Ohio constitution provisions restricting cannabis cultivation to just 10 pre-selected companies.

Anti-Issue 3 campaigns locked onto that detail and framed the measure as creating a cannabis monopoly—though it would’ve actually been an oligopoly—which played a role in the measure’s sound defeat with just 35% of voter support.

Despite bombing at the polls, Issue 3 was a wake-up call for lawmakers who were now concerned that cannabis laws could be created without their control.

In this sense, Issue 3 opened the door for 2016’s House Bill 523, which created the legal infrastructure for the state’s medical marijuana program.

Then-Gov. John Kasich signed that bill in June 2016, and Ohio’s first medical marijuana dispensaries opened their doors in January 2019.

By the next year, organizers with the effort that eventually coalesced into the CRMLA were already exploring plans to bring a medical marijuana law before voters through an initiated statute.

Those initial efforts were stymied, however, by the rise of COVID-19 pandemic.

As vaccines became available and the worst of the health crisis began to subside, the CRMLA regrouped and began collecting signatures for its proposed law.

The measure was poised to come before voters in fall 2022, but Republican lawmakers raised technical questions about whether the CRMLA met filing deadlines for its initial voter petitions.

While the CRMLA said it was prepared to fight that legal challenge, a settlement was reached that allowed the campaign to carry forward its initial petitions to the beginning of 2023, which set everything in motion this year.

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