The state lawmakers who crafted Illinois’ recreational cannabis law don't want local municipalities to overtax it.
In a recently published "Municipal Toolkit," state Sens. Heather Steans, D-Chicago and Toi Hutchinson, D-Olympia Fields, and state Reps. Kelly Cassidy, D-Chicago, and Jehan Gordon-Booth, D-Peoria, advised local governments to “proceed with extreme caution and avoid immediately taxing to the cap.”
The document noted that municipalities that opt to allow recreational cannabis sales will be able to impose a tax of up to three percent beginning in September 2020.
“We are already near the high middle-end of tax rates around the country, and it’s vital to allow the marketplace to mature before increasing tax rates,” it said. “This has been a huge issue around the country as states and locals have often found that street markets lower prices to compete and maintain market share, so it’s critical to allow the new market to gain traction before increasing consumer costs through taxation.”
State taxes depend on the type of product and potency. Those taxes can add up to 40 percent to the cost of recreational cannabis.
Some groups have already raised concerns that over-taxation could keep people from migrating over into the legal consumer market.
“The sponsors are going ‘hey, municipalities, let’s at least see how we do in the beginning before you just automatically put the three percent in right off the bat,’” said Chris Stone, senior policy advisor for Ascend Illinois. “It’s going to make it very hard to make adjustments, especially if the demand ends up being less because the illicit market is able to provide some of the product.”
Statewide, many municipalities face rising costs as a result of underfunded pension liabilities and could use the additional revenue to keep those growing costs at bay.
A recent Pew Charitable Trusts report warned states and local governments about relying on recreational cannabis revenue for vital projects due to the volatility of the revenue stream.
The toolkit predicted that the state's regulated recreational cannabis market will take five years to mature.
The deadline for early approval of cultivation and dispensary applicants is in September, even though many towns have not finalized zoning ordinances for recreational cannabis sales. This could result in businesses paying hundreds of thousands of dollars to the state in licensing fees, but being blocked from expanding into recreational sales because of local ordinances enacted after they applied.