Marijuana

Marijuana Edible Buyers in Illinois Will Pay More Than Twice the Taxes Charged in Michigan

Which state do you think will be more successful at moving cannabis consumers to the legal market?

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Legal recreational sales of marijuana began this month in Michigan, and they are scheduled to begin next week in Illinois. Michigan, where marijuana was legalized by a 2018 ballot initiative, and Illinois, where it was legalized this year by the state legislature, are the first two Midwestern states to allow recreational use, and their cannabis taxes reflect a divergence of views about how to balance the desire for new revenue against the goal of displacing the black market.

Michigan's Proposal 1 established a 10 percent excise tax, in addition to the standard state sales tax of 6 percent. There are no local sales taxes. That makes Michigan one of the lowest-tax states for marijuana. The combined levy is similar to what cannabis buyers pay in Oregon, which has a 17 percent excise tax and no general sales tax. Maine has a cultivation tax of $335 per pound (about $21 per ounce) and a general sales tax of 10 percent. Alaska has a $50-per-ounce cultivation tax but no excise or sales taxes.

Illinois, by contrast, will be collecting a 7 percent tax from growers and various excise taxes (10 percent on buds, 20 percent on infused products, and 25 percent on products containing more than 35 percent THC) in addition to the general state sales tax of 6.25 percent and local sales taxes as high as 4.75 percent. The combined sales tax in Chicago is 10.25 percent, making the total retail levy there more than 30 percent for edibles, in addition to the impact of the cultivation tax. That means edible buyers in Chicago will pay more than twice the taxes as edible buyers in Ann Arbor.

That's without taking into account local "occupation taxes" on cannabis retailers, which can be up to 3 percent of gross receipts under state law. Cook County, which includes Chicago, plans to impose the maximum allowable rate.

The Illinois levies are not quite as high as the burden in Washington, which charges a 37 percent marijuana excise tax on top of general sales taxes that total 10.1 percent in Seattle, or in California, where the combined taxes can be as high as 45 percent. But Illinois legislators do not seem very concerned about making it harder for state-licensed marijuana businesses to compete with illegal dealers, even though the upshot could be less revenue than might be collected at a lower rate with a bigger base.

In California, where state officials originally expected $1 billion in annual revenue from marijuana taxes, the actual take for the fiscal year that ended in June was $288 million. High tax rates are not the only reason for the disappointing revenue: Licensing lags, onerous regulations, and local bans also have helped preserve the black market, which still accounts for nearly three-quarters of sales two years after legal recreational sales began. But the taxes certainly don't help.

It will be instructive to see if Michigan, which also has the advantage of a more extensive medical marijuana industry, fares better than Illinois in shifting consumers to the legal market. The promise of new revenue for the government, which may strike libertarians as an argument against legalization, nevertheless has played a conspicuous role in persuading the public that it's time to end the war on weed. But even politicians who are in it for the money should recognize that it's against their interest to milk cannabis consumers so much that they stick with the pot dealers who collect no taxes at all.

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  1. Natural experiment!

  2. Only Illinois could make Detroit look like a paradise. So move!

    1. Both states pols made them miserable and costly places to live. I grew up in Chicago, and I wouldn’t move there even if my life depended on it.

  3. Part of the humor in this is that California expected less than 0.5% in total budget revenue from their pot tax, missed by .4%, and yet the pols will moan and gnash their teeth about losing so much opportunity to help the children and save the planet.

  4. Illinois is facing bankruptcy over the lack of funds to pay for pensions. Whatever they can tax, they will gouge the consumer. It’s only going to get worse.

    1. 1005 right, ValVerde: Unlike Arizona and North Carolina, states like ILL., Michigan, etc. never learned (and probably never will) that taxing citizens and businesses to the max produces stagnation, NOT growth. If I still lived in Chicago I would support the total elimination of state and local government and start over, as the current system is NEVER going to work. I loved Chicago once upon a time, but now it is just another Detroit in the making unless SOMEONE realizes that lower taxes and regulation provides GROWTH, not the stagnation (at best) of the current regime.

  5. I’ve said this before and I’ll say it again: when marijuana law “reformers,” particularly in blue states, called their movement “Tax and Regulate,” do you think they were kidding?

    1. They completely abandoned any argument in favor of natural rights and sold their souls for more government revenue. Better than nothing but not by much.

    2. Yeah, the U.S. is supposed to be a FREE country, and pols make it otherwise by PRETENDING to do good, while really doing the opposite. A TRUE DEMOCRACY would be tough to get, but it would be HUGELY better than the current political system. Imagine a “free” country telling “free” people what they can ingest, who they can have sex with (govt. was the reason for gay discrimination) and the like.

      1. “…A TRUE DEMOCRACY would be tough to get, but it would be HUGELY better than the current political system…”

        Nope. The hag won the popular vote; we need electoral colleges for the senate.

  6. Edibles suck spend your money on regular weed or concentrates.

      1. It tastes bad. You have to eat a shit load. It takes two hours to kick in. Give me a dab anyday.

  7. The beauty for recreational in Michigan is that you can grow your own plants, and medicinal had already been legal for several years. So I got some clones from someone who already was legally growing for medicinal use, and grew a couple plants in big pots on my deck.

  8. On the bright side IL hasn’t banned vaping. Yet.

  9. Taxes.
    Insurance makes me more angry than taxes.

    1. Victoria: If you mean FORCED insurance (other than car insurance) you are right to be angry. Imagine telling “free” citizens that, like it or not, need it or not, you WILL get health insurance, and we’ll FINE YOU if you don’t!! Does this sound like the utterance of a FREEDOM LOVING GOVERNMENT?!!? Government should supply those who cannot afford health insurance with insurance, but it has NO RIGHT forcing those who don’t need it or don’t want it to get it. We should fight for a HUGE reduction in Federal power and control over the states.

    2. “Insurance makes me more angry than taxes.”
      Don’t buy it. But don’t whine when you’re stuck with a high cost ‘accident’.

  10. My take on this – and I may be wrong – is that a lot of the Political Class think legalization is a bad idea, and where such people have the power to do so they make the process of being legal as burdensome as they can get away with. Then , when the black market doesn’t go away, they can point to it and say “See, we told you this was a bad idea!”

    On the Republican side you have the Lawr ‘n Owdah types worried about The Killer Weed. On the Democrat side you have the Progressive Left, which has seldom seen a tax or a regulation it didn’t love. Both sides have drifted far away from the idea that politicians are supposed to do as the voters tell them. The Republicans seem to be learning a little, in spots. The Democrats are foam-flecked nuts, and doing what the Remain types in Britain did; telling the voters they are nasty-bad people and don’t know what’s good for them. I suspect it isn’t going to be a vote-getting strategy, but I’ve been wrong before.

    Hell, Prohibition was ended nearly ninety years ago, and most states STILL try to micro-manage the liquor business. I suspect we’re going to be seeing boneheaded policy on legal marijuana for AT LEAST the rest of my life.

  11. Why, it’s almost like illegal drug market in Illinois is paying off the politicians to protect their market.

  12. The place I go (because it’s near my house) is a joke of a hole in the wall. The “pharmacists” are stoned as fuck. I pay whatever they tell me because who the fuck knows. It’s about on par with what we used to pay when it was illegal relative to quality. Whatever. It’s “medicine” so what are you gonna do.

    I totally feel that it’s such a joke in my state how liberal the cannabis regulations are vs. how conservative the state is that it’s only a matter of time until the fundies claw their way back to prohibition and I have to pretend to be friends with my dealer again.

    Or maybe it was the fundies who helped pass it in the first place, since everyone smokes weed, including them.

    1. Perhaps next time you post you won’t be stoned.

    2. “…I totally feel that it’s such a joke in my state how liberal the cannabis regulations are vs. how conservative the state is that it’s only a matter of time until the fundies claw their way back to prohibition and I have to pretend to be friends with my dealer again…”

      So you have to make up some hypothetical in the hopes of getting sympathy from people who laugh at your lefty ignorance?
      Fuck off and die, shitbag.

  13. Frankly, I feel better about dealing with my corner roach monkey than the legal weed shop. Less crowded, cheaper and I trust the guy more. It warms my heart, actually, that we cut government out of everything.

  14. Gosh… I wonder how that price gradient will affect real-life decisions? Why not repeal the 21st Amendment and leave the 18th in the dustbin with it? It sets a sorry precedent.

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  16. “Which state do you think will be more successful at moving cannabis consumers to the legal market?”. this question can’t be answered by the facts in this article because it does not compare important facts, including the number and locations of marijuana (recreational and medical) dispensaries in the two states, and the legality of home grown (recreational and medical) marijuan, the availability of marijuana. taxes may not be the only, or even decisive, factors that need to be considered.

  17. I live in WA State, and last summer I decided to grow my own marijuana. The yield was about 4 pounds from 4 plants, and the cost totaled about $150, or just under $1 an ounce. It was that high only because I bought clones for $25 each. If (as I will eventually do), I’d planted some males for seed, my cost would have been $50 for fertilizer, or 78 cents an ounce. In the “legal” shops, MJ will sell for about $150 an ounce.

    Some years back, the Rand Corp. studied marijuana and concluded that, if it were treated like any other crop, the growing cost for a commercial operator using paid labor would be about $3 an ounce and would decline from there as farmers adapted their machinery to process it.

    When I’d point this out during online discussions, the “progressive” stoners scoffed. Well, guess what? The black market is thriving in the Pacific Northwest. Both WA and OR have responded (as I predicted) by continuing their drug wars against “illegal” pot growers and restricting the availability of growing licenses.

    This is straight out of Econ 101 and the behavior of monopolies: Restrict quantity to support price. This won’t work for very long, because unlike, say, alcohol and cigarettes, MJ is easy to grow. Harvest is a pain because a backyard gardener does the processing by hand, but when the cost is so low, the incentive is there. So my MJ grows next to my veggies, and is pretty close to free.

    Over time, home-grown marijuana will only take more market share. The state’s markup — including Michigan’s — is far too high. Once MJ is more broadly acceptable, it’s going to prove impossible to fight America’s army of gardeners. States will try hard to defend their cartel, but will fail. I can’t say how long it will take, but eventually the tax take will be minimal.

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