Marijuana customers in Illinois are in for a price shock come July 1 this year as new taxes take effect. Currently, in Illinois, marijuana sales are being subjected to state and local taxes, plus an additional state marijuana excise tax, which has increased the overall tax rate from 20.25% to 35.25% in the municipalities and counties. This also depends on the potency of marijuana being sold.
The cities and counties in the state are yet to start imposing local weed taxes, which is 3 percent each, and this could drive up the overall tax rate to 41.25%. Of the 11 states where adult-use marijuana is legal, Washington is the only state whose tax rate is higher at 47%.
During the first day of recreational marijuana sales in Illinois, some marijuana customers posted their receipts on social media, which attracted a lot of attention. But, as far as sales are concerned, tax rates didn’t seem to deter the customers.
The supply of recreational marijuana is low and it cannot meet the existing demand. And, it is predicted that the recreational marijuana shortage may be experienced even in 2021 because additional demand for marijuana will come in through online shoppers in the coming months.
The managing director for BDS Analytics, Tom Adams, said that it is exciting going into a marijuana shop for the first time, but the feeling dies off real quick when they start running the numbers in your head, and the demand reduces. BDS Analytics is a research firm that tracks the marijuana sector.
The CEO of MedMen, Adam Bierman, said that the customer’s shopping experience is ruined by the high taxes. MedMen is based in Los Angeles and operates dispensaries located in Evanson and Oak Park.
Tom Adams further said the higher taxes would force people to buy weed from the black market where there are no taxes; thus, the illicit market will continue to grow.
According to BDS Analytics estimates, in Washington, the black markets take up 51% of the total marijuana sales, while in Colorado, where taxes are 25%, the black market accounts for 34%.
Michigan launched its recreational marijuana sales on December 1 last year, and its overall tax is at 16%.
Tax is one of the factors that determine the growth of the legal marijuana market, said Adams.
Because the marijuana shortage in Illinois will not be solved anytime soon, the consumers within the state may not see the effect of the imminent tax increase for a while.
A few months ago, the legislators warned that the tax rates might influence marijuana sales, but since every level of government within the state is struggling financially, they were more focused on the income that would come with legalization.
This year, the state expects to collect $57 million in tax revenue from marijuana sales, which would increase to $141 million for the financial year beginning on July 1. The state of Illinois estimates that within four years, it will have hit $376 in tax revenue.
Industry experts say that it wouldn’t be surprising if companies like Dama Financial and ChineseInvestors.com (OTCQB: CIIX) associated with the cannabis industry recommend a revisiting of the Illinois marijuana tax regime in order to avoid stifling the nascent legal industry.
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