If you have ever wondered where all the tax revenues from cannabis sales go, this will give you some idea. Because states that have legalized medical cannabis create a new revenue stream that infuses tax dollars into pandemic beleaguered budgets. And some jurisdictions have earmarked a percentage of annual cannabis taxes to specific programs.
Illinois is one of those states. In fact, after legalizing adult use on January 1, 2020, there was an unexpected surge in cannabis sales. After the implementation of HB 1438, “The Cannabis Regulation and Tax Act,” no one guessed the demand that Illinois adult-use dispensaries would see. To the extent that several times in 2020, Illinois ran out of cannabis when demand exceeded supply.
After a record-setting year of cannabis sales, some of the tax revenues were appropriated per legislative requirements. How much tax does the state of Illinois collect on all aspects of cannabis cultivation, licensing, production, and retail sales? And where does that tax money go at the end of the year?
Taxing the Adult-Use Cannabis Industry in Illinois
Affordability can be a problem for adult-use buyers. But it’s not a problem for patients. You see, patients with a medical card in Illinois are tax exempt, except for a 1% retail occupational tax. It helps to keep it more affordable for patients.
By contrast, purchasing adult-use cannabis in Illinois is expensive. First, there is a 25% excise tax to purchase at a recreational dispensary. Ouch. But that doesn’t include an additional 6.5% state sales tax, for a total of 31.5% tax on all adult-use purchases.
It could be as high as 34.5% if purchased in a community that levies a 3% county excise tax on top. Unincorporated counties or jurisdictions can add 3.75% on top of that. That means some residents of Illinois may be paying over 38% tax on each recreational purchase.
But that is just one step in the levels of tax revenue that the state of Illinois derives from cannabis sales. Retail sales taxes are only the start. There are also commercial taxes that generate a tremendous amount of income for the state.
Commercial Taxation of Cannabis in Illinois
All taxes are paid into the general Cannabis Regulation Fund. The government of Illinois collects cannabis taxes on every aspect of processing, production, and distribution, which includes:
7% of gross receipts from the sale of cannabis by a cultivator or grower to a ‘dispensing organization.’
25% (of purchase price) manufacturer tax on cannabis-infused products
10% of the purchase price for the cannabis purchaser excise tax for all cannabis at or below 35% THC potency
25% of the purchase price for the cannabis purchaser excise tax for all cannabis above 35% THC potency
The combined commercial cannabis taxes coupled with the retail sales taxes for adult and medical use sales quickly added up. How much did the state of Illinois collect in tax revenue in 2020? A whopping $175 million.
Where Does the Cannabis Tax Money Go in Illinois?
In 2020, Illinois experienced the first revenue flow from recreational cannabis sales. And it was good. The allocation of state revenues from cannabis-related taxes was already mandated in the legislation to legalize adult use.
First, all the monies collected are deposited into the Cannabis Regulation Fund. And from there, funds are allocated after the close of the fiscal year. The split of the tax money in Illinois seeks to address important social programs.
Illinois funded the following programs with a portion of the $175 million in cannabis tax revenues from 2020:
35% went to the General Revenue Fund, or the state’s general checking account.
25% was transferred to the Criminal Justice Information Projects Fund (R3 Program). It manages youth development, prevention of violence, civil legal aid services. And economic development for communities impacted by the ‘war on drugs.’
20% was transferred to the Department of Human Services Community Services Fund. This is for substance abuse education, prevention, and support.
10% was transferred to the Budget Stabilization Fund for state debt reduction.
8% was provided to the Local Government Distributive Fund. This enables crime prevention and law enforcement training. It also provides technology and equipment funding. Also, a program to reduce cannabis DUIs.
2% was provided to the Drug Treatment Fund for public education on addiction and safe use and public health research.
Programs for Social Good Funded by Cannabis Sales
In total, social funds in Illinois received $31 million from 2020 cannabis tax revenues. And the state put that money to good use. Residents who did not vote for or support the legalization of cannabis in Illinois still benefit through the injection of tax funding into essential social programs.
Whether you like legal cannabis or not, you have to admit, the taxes are helping states like Illinois by providing a valuable revenue stream. And Illinois is just one example of how cannabis sales support state budgets. It has helped them navigate the cost of the Covid-19 health emergency.