EXTRAS ON EXCISE: UPCOMING OHIO MARIJUANA VOTE SPARKS REVENUE CRAVING

marijuana money

On November 3rd, citizens of Ohio will be voting on State Issue 3, a proposed amendment to the Ohio Constitution that would legalize both medical and recreational marijuana sales and use in the state.

The proposed amendment would further allow individuals 21 or older to possess one ounce of marijuana, while citizens wanting to grow marijuana may do so with a license. A licensed grower may have up to four plants and up to eight ounces of marijuana in their possession. Ten marijuana farms in varying specified locations with plot sizes predetermined by the amendment are also specified.

Marijuana in Ohio will be taxed at a flat rate of 15 percent for farms and manufacturing facilities. A 5 percent tax will be imposed on the revenue from retail marijuana stores.

Ohio’s Office of Budget and Management (OBM) and the Department of Taxation (DOT) have created a tax estimate for the annual yield obtained by the proposed marijuana taxes. An annual estimate for revenues created by marijuana production and sales is between $133 million and $293.3 million. This estimate was based on optimal production and the ability to keep up with demand among other factors. Realistically, this revenue would take a few years to reach this level.

Just for comparison, the chart below shows the 2014 population estimate from the Census Bureau for Ohio, Washington, and Colorado. It also shows the marijuana tax rate of Washington and Colorado for 2014 as compared to the proposed Ohio tax rate and revenue received by Washington and Ohio for their first year of legalized sales of marijuana compared to the estimate produced by the OBM and DOT.

Compared with Colorado, Ohio has almost double the amount of people. However, that does not mean double the amount of people are planning on partaking in marijuana sales or manufacturing, yet the tax estimate for Ohio marijuana sales has more than double the amount of tax revenue estimated. Colorado sales of marijuana became legal in 2014 and the estimated tax revenue for 2016 is still just under $100 million. This 2016 estimate comes from a state where medical and recreational marijuana had been legal for two years prior to legal sales. Ohio would be starting from scratch, as marijuana use is not currently legal for any purpose in Ohio.

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Meanwhile, Washington, saw $70 million during its first year collecting revenue from manufacturing and selling marijuana. However, this may be due to the high tax rate for Washington, 25 percent at all levels of production and distribution. Compared with the varying rates of Colorado and the proposed Ohio tax that only goes as high as 15 percent. As of July 1, 2015, Washington consolidated the tax rates into a single tax rate of 37 percent on retail sales of marijuana. It will be interesting to see if Ohio is able to make its revenue prediction without resorting to tax price gouging.