Some say Illinois' high cannabis tax rate is costing state in revenue

[April 27, 2023]  By Andrew Hensel | The Center Square

(The Center Square) – Illinois has the second highest taxes on cannabis products in the nation, behind only Washington State, and some believe the high amount is hurting the state's profits.

In March, Illinois generated $135 million from legal cannabis sales as the state implemented a tax rate of 25% of the purchase price of marijuana. In 2022, Illinois generated $445 million in tax revenue from legal cannabis sales.

Bryce Hill of the Illinois Policy Institute said no matter where people live in the state, the taxes will be high.

"In Illinois, you have tax rates at the state level just ranging from just over 16% to slightly above 31%, depending on the type of cannabis product you buy. You also have local taxes that can factor in on top of that," Hill said. "In Chicago, for example, you have tax rates ranging all the way from 41% to 26%."

Hill told The Center Square that some Illinoisans had found different ways to purchase cannabis products to avoid paying the taxes.

"Taxes within Illinois are second highest in the nation on cannabis, and there's a very real effect that has on pushing customers back into the black market rather than into the legal market," Hill said.

If Illinois implemented a similar tax rate as Colorado, they could see almost $900 million in extra revenue. On a smaller scale, if the state modeled itself after Nevada it could see hundreds of millions more in revenue each year.

"Even if we look at a lower propensity state like Nevada, we could be collecting an additional $300 to $400 million there as well if we had tax rates more in line with Nevada," Hill said.

Lawmakers have suggested cutting the tax so the state can stay competitive and businesses can thrive in Illinois.

State Representative Mike Marron, R-Fithian, told the Center Square that the taxes are a sign of an "inhospitable business climate."

"Illinois Democrats routinely create higher taxes, red tape regulations, and focus on cultural battles instead of prioritizing fiscal responsibility for all communities in the state," Marron said. "As a downstate farmer located next to tax light Indiana, I know the inhospitable business climate in Illinois better than most. I am not for encouraging vices on anyone, especially our youth, but this outrageous tax rate is symbiotic of the out-of-touch tax and spend progressive policies."

State Rep. LaShawn Ford, D-Chicago, said people want a safe product, but still suggested a change.

"The Illinois Cannabis Act has been the law since 2019, and the transitional market sales have taken a blow in sales. If we want to eliminate the illegal sale of weed, we have to be competitive with the price and taxes of the legal product." Ford said. "It's clear by now that people make the choice regardless of price. People pay for clean products and services."

Cannabis products have been legal for sale and consumption in Illinois for four years.

Andrew Hensel reports on issues in Chicago and Statewide. He has been with The Center Square News since April of 2021 and was previously with The Joliet Slammers.