Study: Illinois marijuana industry will have to expand to meet legalization demand
Market could produce $440 million or more in revenue when mature
By JERRY NOWICKI
Capitol News Illinois
SPRINGFIELD – A fully-matured adult-use marijuana program in Illinois could produce between $440 million and $676 million in annual revenue, and the expected demand would be far greater than the state’s current supply, according to a demand study released Friday.
The study was conducted by Freedman and Koski, a Colorado consulting firm which advises local governments on the implementation of marijuana legalization. It was commissioned by state Rep. Kelly Cassidy and state Sen. Heather Steans, both Chicago Democrats who have been working on legalization efforts for the past two years.
Illinois would have to produce 350,000 to 550,000 pounds in dried cannabis plants each year to meet the expected demand, the study said. The state’s existing industry could supply between only 35 percent and 54 percent of that number. The bill’s sponsors said the expansion of the industry will help increase minority-owned business inclusion.
“We’re contemplating additional license categories such as craft cultivation, transportation and processing to ensure that everyone is at the table,” Cassidy said. “These will create space for more innovation and entrepreneurship in the industry, but more importantly, provide opportunity for more diversity in an industry with a pressing need for it.”
The revenue and usage estimates were determined by using other states with legalized marijuana as a baseline, while factoring in Illinois’ usage and tourism rates among other demographic factors. Illinois would become the second-largest of the 11 states to legalize adult-use cannabis and the third-largest jurisdiction in the world after Canada and California.
The tax revenue estimates were based on a total mature-market marijuana industry revenue number of $1.69 billion to $2.58 billion, which was determined by medicinal prices and the usage estimates. These revenues, taxed at an assumed rate of 26.5 percent, would produce between $443,690,100 and $676,481,400 annually.
The study’s authors warned that revenue estimates are an inexact science, and it was not clear in the report how much of the assumed tax revenue would be offset by increased costs of state regulation.
“Choices made by Illinois regulators will have significant effects on price and revenue, and until such choices are made, revenue estimates will be challenging to estimate,” it said.
The estimates could shrink if users grow their own marijuana or purchase it illegally, the study said. This could happen, because illegal marijuana is likely to remain cheaper than what is legally purchased, at least until initial regulatory costs decrease and economies of scale push prices down.
Even if all users bought legally, the study said it would be some time before the large usage and revenue estimates are realized in Illinois.
No sales tax revenues are likely to be realized anytime soon either, as Cassidy said last week the earliest possible implementation date for legalization would be January 2020.
Still, Gov. J.B. Pritzker, a committed legalization supporter, is banking on $170 million in revenue from licensing fees resulting from the legalization program. His office has not said how many licenses that would entail or how much they would cost.
The report released Friday warned about granting too many licenses.
“States like Oregon have faced the challenges of dramatic oversupply, encouraged by too many licensees producing far too much product for the market,” the report said. “This has led to significant drops in prices that have caused challenges for businesses’ ability to operate and incentivized out-of-state diversion that has been documented as far away as the East Coast.”
Steans said last week Illinois’ medical program has one of the better cannabis tracking systems in the nation from seed to sale, and the reason for the demand study was to prevent problems such as the ones seen in Oregon.
Cassidy said she would like to see Illinois’ medicinal market continue to grow as well. Between January 2017 and December 2018, the number of registered, qualified patients rose from 15,900 to 52,365, and the number of unique patients served rose from 10,175 to 29,954, according to the report. A recent law allowing cannabis as an alternative to prescribed opioids is expected to increase the market as well.
The bill’s sponsors have also been vocal about including criminal justice reforms in their legalization efforts for those incarcerated for marijuana-related crimes.
“For generations, government policy of mass incarceration increased racial disparities by locking up thousands of individuals for marijuana use or possession,” said state Sen. Toi Hutchinson (D-Chicago Heights), the legislation’s chief co-sponsor in the Senate. “Now, as we are discussing legalization, it is of the utmost importance that we learn from these mistakes and acknowledge the lingering effects these policies continue to have in neighborhoods across this state. No conversation about legalization can happen absent that conversation.”