Illinois cannabis sales grow, but so does competition

SPRINGFIELD — After some growing pains, Illinois’ legalized cannabis industry has been high on success on the green stuff — money, that is. 

Recreational sales have grown from nearly $670 million in 2020 — the first year they were permitted — to more than $1.63 billion in 2023, according to data from the Illinois Department of Financial and Professional Regulation.

But as Illinois weed enthusiasts toke up on the 4/20 “high” holiday, there are signs of trouble for the industry underneath the surface, most notably in the form of increased competition from surrounding states that have since legalized the product, as well as in-state competition from intoxicating hemp products that are taxed at far lower rates and fall outside of the state’s regulatory framework.

‘Abnormally high’ tax rate

Though cannabis sales have continued to go higher and higher, the percentage increase from year to year has been lower and lower.

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From 2020 to 2021, revenue jumped an exponential 106%. Between 2021 and 2022, the growth was just 12.6%. And from 2022 to 2023, the rate decreased again to just 5.32%.

And for the first time, out-of-state sales decreased year over year, dropping from about $479 million in 2022 to about $408 million in 2023, about a 15% decrease.

A possible culprit? The legalization of recreational marijuana in neighboring Missouri, where adult-use dispensaries raked in more than $1.1 billion during the first year of sales in 2023.

The Show Me State applies a relatively minuscule 6% tax on the retail sale of cannabis. Illinois, on the other hand, has one of the highest cannabis tax rates in the country, including a retail excise tax of 15%, 20% or 25%, depending on the product’s THC level, plus the state’s 6.25% sales tax and the local sales tax rate paid by all retailers.







Cannabis

A strain of cannabis called GMO Sherbs grows under lights inside of the veg-mom room at Cannect Wellness, Nov. 3, 2023, in Franklin Park.




“The state tax rate is abnormally high,” said Trent Woloveck, chief strategy director for Jushi, the multistate cannabis company that operates Beyond/Hello dispensaries in Bloomington and Normal. “That’s one thing that I think should continue to be looked at from a state level, because it’s in (the) low teens for a lot of states now.”

However, it appears unlikely that a reprieve is coming, with a spokesperson for Gov. J.B. Pritzker telling Capitol Fax, an Illinois political newsletter, earlier this week that the administration does not back a rollback on the tax.

In 2023, the state collected nearly $418 million in tax revenue from cannabis sales.

The tax revenue for cannabis falls into several key buckets, including 35% for the general revenue fund and 25% for the state’s Restore, Reinvest and Renew (R3) program, which awards grants to communities that have been harmed by violence, excessive incarceration and economic disinvestment.

A portion of the funds also go toward mental health programs and grants for law enforcement.

Competition from other states, products

According to the National Conference of State Legislatures, 24 U.S. states, two territories and Washington, D.C., have legalized marijuana for recreational use.

Though Missouri is the only state bordering Illinois with legalized recreational sales, other Midwestern states, such as Michigan, Minnesota and Ohio, have also come online in recent years. 

Another challenge that Illinois lawmakers are trying to work through is the proliferation of hemp and delta-8, products that have become more popular throughout the state and the nation due to the passage of the federal government’s 2018 Farm Bill. This bill defined hemp as a product separate from cannabis and removed it from the controlled substances list.

There are currently no age restrictions or regulations on this product in Illinois, making it easy for anyone of any age to get ahold of these products anywhere. Lawmakers are attempting to put some regulations in place for these products.







Cannabis

Workers pre-roll flower products in the packaging room of 1937 Group, a cultivation cannabis manufacturing facility, in Broadview, Illinois, on Jan. 10. 




Three bills, sponsored by state Rep. La Shawn Ford, D-Chicago, and Sen. Lakeshia Collins, D-Chicago, would regulate both hemp and delta-8, while the fourth bill, sponsored by Senate Majority Leader Kimberly Lightford, D-Maywood, would regulate hemp but temporarily ban delta-8 for further study and review of the product’s safety.

“If you manufacture products and regulated cannabis, you have to outfit your facility the way that the state is telling you with a whole bunch of cameras, a whole bunch of security, certain types of jobs (and) certain types of construction (that) the hemp industry is not subject to,” said Chris Stone, a Springfield cannabis consultant who owns a dispensary in Southern View. “That makes the hemp product a lot cheaper than what the regulated cannabis is, so it makes it harder for regulated cannabis to compete against hemp.”

What’s next?

Looking ahead as to what’s next for Illinois’ cannabis industry, many believe hemp regulation and lowering the state tax rate are among the things needed to improve the industry.

Tiffany Chappell Ingram, executive director of the Cannabis Business Association of Illinois, said another thing that has been circulating through the legislature regarding Illinois’ cannabis industry is the need to restructure the regulatory framework. Currently, up to a dozen different agencies have a hand in cannabis regulation, she said.







Tiffany Chappell Ingram

Chappell Ingram


“That creates some challenges not only for those of us that have to follow the regulations to be in compliance, but that also causes challenges for the regulators themselves that have to operate in that landscape,” Ingram said. “I think that’s one of the main things that would be a good and helpful way to manage the industry better.”

Despite the challenges, many within the industry are optimistic for what’s to come, both at the state and federal levels. In recent weeks, there have been talks of the federal government reclassifying cannabis from a Schedule I drug to a Schedule III controlled substance.







Cannabis Business Association

Tiffany Chappell Ingram, executive director of the Cannabis Business Association of Illinois, holds a bag of Fritos and a THC product that mimics the packaging, on April 11 at the Capitol in Springfield. Lawmakers are considering regulations for hemp products that fall outside the state’s tightly regulated cannabis industry. 




According to McGlinchey, a law firm that deals with regulatory landscapes, this could mean significant changes. For example, certain tax burdens for cannabis businesses could be eliminated. And it would make it easier to research the drug and allow for the possibility of more cannabis-based drugs to be prescribed for use. However, this would not legalize state-level programs.

“I think (this possibility) is going to mean drastic changes to the state programs, which will hopefully be helpful in terms of being able to provide consumers with more products, better products and more accessibility to the products,” Stone said.

The rollout of Illinois’ recreational cannabis industry was deliberately slow, with existing medical dispensary license holders being given the first crack at the budding industry as the state ramped up its dispensary lottery process, which had a heavy social equity component.

Though slowed by lawsuits and initially failing to meet the legislation’s lofty goals of righting past wrongs and diversifying a nearly all-white industry, the industry has started to take off as intended.

There are now 196 dispensaries operating in Illinois, including 86 social equity licenses. The Illinois Department of Commerce and Economic Opportunity reports that 59% of those social equity dispensaries are owned by people of color and 16% of them are owned by women.







Erin Johnson

Johnson


“I would say our market has been a success,” Erin Johnson, IDFPR cannabis regulation oversight officer, told Lee Enterprises in an interview. “It’s the most diverse industry in the country, which we are very proud of. We have some of the highest numbers of Black and brown ownership, as well as women ownership in the country, so we are super proud of our industry.”

An IDFPR spokesman said another 114 dispensaries are still pending, but the agency is hopeful they will open this year. The spokesman added that the agency expects to award 49 conditional licenses in the coming weeks.

Lee Enterprises’ Brenden Moore contributed to this report.

As recreational marijuana shops increase across the country, many health officials have growing concerns over the packaging and marketing of flavored cannabis that could appeal to people under 21. Marijuana use may harm the developing teenage brain, according to the CDC. It may lead to difficulty thinking and reduced coordination. The CDC says 22% of U.S. high school students in 2019 reported using marijuana in the last 30 days. New York, which legalized recreational marijuana in March 2021, forbids marketing and advertising that “is designed in any way to appeal to children or other minors.” But the state has yet to officially adopt rules on advertising that could ban cartoons, candy depictions and other marketing, which the New York State Office of Cannabis Management suggests could attract people under 21. Many strains of cannabis had catchy names long before marijuana was legal. Medical use of cannabis is currently allowed in 37 U.S. states, while 21 states allow recreational use. Local lawmakers often look to the federal government to set national standards, an option not possible for cannabis marketing because marijuana remains illegal at the federal level.