Legalization of Cannabis in Illinois: What are the Economic Effects?
By Noelle Sanzeri and Kendall Knox
Editor’s Note: The names of the marijuana dealers were changed as they spoke on the condition of anonymity.
Illinois Gov. J.B. Pritzker made a promise during his campaign that marijuana for recreational use would become legal, following the lead of states such as Colorado and California. In January, Pritzker followed through on his promise and marijuana was made legal for recreational use. One question many people were asking was “how will dealers be affected by this change?”
But the legalized sale of cannabis hasn’t hurt the business for recreational drug dealers in Chicago. Even during a pandemic, it’s business as usual. Jason, a dealer in Illinois, said he has no intentions of slowing down and that in fact, his business has begun to increase.
Jason said that the de-stigmatization of weed has made people who were once apprehensive more willing to try it and the well established customers more comfortable.
“The metaphorical stories of the soccer mom buying weed from the neighborhood dealer is now more of a reality,” he said, adding that personally he has not noticed a decrease in police presence but “is no longer worried about being harassed by the police for non-violent drug charges”.
When asked about the ramifications of legalization and what it meant to his future business, he said that he “expects no changes and expects more business.” He has seen return customers that found dispensary prices were just too high.
As Jason said, legal marijuana doesn’t come without a price. In Illinois, there is a steep tax on recreational sales. Starting at 26.25% on products with less than 10% THC, the tax climbs 10% for every 10–15% increase in THC in products, according to Illinois statutes.
Although these steep taxes can be a turn-off for many people, the state has seen a significant increase in legal sales with the COVID-19 pandemic. In October 2020, Illinois reached a $100 million milestone in tax revenue from cannabis sales, showing that there has been no slowing down in regards to sales.
While dealers are still thriving and don’t plan on stopping their underground business, there are dealers who are looking to transition into the legal selling of cannabis. Steve, a former Chicago dealer who looked into opening a dispensary, was initially “excited” about the process, until he found out how little profit there would be.
“If you want to make a business out of running a dispensary, the last place you want to do it is in Illinois,” Steve said. “Cresco is monopolizing the cannabis industry in Illinois and regular people who used to sell aren’t being given the chance to actually see a profit.”
In Illinois there are five different types of licenses residents can apply for: cultivation center, craft grower, transporting organizations and dispensing organization. With the wide array of licenses people can apply for, most people are looking to open a dispensary. The starting cost? A cool $5,000 for the initial application fee, which if turned down, is non-refundable.
After the application fee, costs continue to increase. If approved, a licensing fee that is good for 2 years is $60,000. Even for those who have the finances to cover the initial fees, there are many more costs to consider, such as building costs, employee costs and of course the cost of acquiring a sufficient amount of product.
“Ultimately, unless you have a surplus of money, most dispensaries won’t see success and will have to close after their first two-years, because of how high the licensing fee is and how taxed everything else is,” Steve said.
While many dealers would like to move into the legal cannabis industry, the taxes and fees in Illinois remain some of the highest in the country. However, there are still plenty of incentives in Illinois to encourage people to open dispensaries and catch a break on the fees. This is part of Illinois initiative to help minorities who were targeted by the War on Drugs specifically.
Timeline: The War on Drugs
To combat the growing disparities in the budding industry and combat the racial inequality of the war on drugs, organizations like the Cannabis Business Development Fund, have stepped up. With their 3R (Restore, Reinvest, Renew) social equity program. With a fund of 12 million dollars, they seek to help start-up businesses by offsetting licensing fees and lower interest rates.
To qualify, ownership or staff must have been directly impacted by the war on cannabis, specifically those individuals convicted of a cannabis-related offense, or persons with strong ties to communities’ disproportionality affected by cannabis law enforcement or poverty. Specifically, businesses must be owned by 51% or more of those who qualify for the fund or must be operated by employees who qualify, at a 51% rate. Local colleges can apply for funding to provide training programs for those seeking to work in the cannabis industries.
While it is far from perfect, Illinois broke records in its first year selling legalized marijuana. Dealers are seeing more profit, and the state is seeing a fair amount of tax revenue. The question still remains, is the tax revenue from legalized cannabis sales going to greatly impact the state of Illinois and its residents?
John Gripe, a finance expert, with over 40 years of experience with matters of debt, weighed in on this question.
“To know whether or not the tax revenue will be used to help pay off Illinois debt, it is important to look at the history of programs the state has put in place with the intentions of relieving debt or starting a new revenue stream. The tollways were originally used to pay for the interstates, but then prices kept increasing and they weren’t used as a self-maintenance form of revenue anymore,” he explained.
“What happened with the mismanagement of money from the tollways will probably happen with the revenue from cannabis. It’s important to remember that in a state with $203 billion in debt, a $100 million tax revenue from cannabis sales isn’t going to do as much for the state that they say it will. Also the taxes on cannabis will drive people to dealers, more than likely, which doesn’t help the state at all.”
Overall, dealers don’t mind that the state won’t see financial rewards from legalization, because their business is still up and running, and doing better than ever. Steve joked, “Illinois has no idea what they’re doing with their taxes and money but at least it makes it easier on me and my ‘small business’.”
