Has interest in recreational marijuana in Illinois peaked?

Since recreational marijuana sales were legalized statewide in January 2020, taxes and fees have generated more than $850 million for Illinois.

Last month alone, the 110 recreational dispensaries throughout Illinois collected $131,547,031 in revenue, their fourth-highest monthly tally ever.

But those sales figures have remained relatively flat since March, leading some to worry the state’s cannabis cash cow has reached the highest hill in the state’s revenue pasture.

Less than two weeks ago, the state legislature’s Commission on Government Forecasting and Accountability revised the state’s revenue estimates, reducing cannabis tax fund expectations by $8 million this fiscal year. It was just one of three general fund revenue sources where officials now anticipate fewer dollars than initially budgeted.

Illinois dispensaries are also getting competition from Missouri after voters there recently approved adult-use marijuana sales. None of the five states that border Illinois previously allowed recreational sales of marijuana.

“Nearly a third of the state’s (recreational) sales came from out-of-state residents, but there was a huge influx from Missouri,” said Pam Althoff, executive director of the Cannabis Business Association of Illinois, the statewide lobbying arm of the industry. “But there are really several reasons for the plateauing.”

Althoff cited inflation, more workers returning to the office after the COVID-19 pandemic and the state’s high tax rate on marijuana as reasons sales have leveled off.

“For many, the illicit market is probably a more practical financial alternative,” she said.

Still industry insiders see room for continued growth in Illinois, particularly in areas where dispensaries don’t yet exist.

“Some people have to drive 100 miles to get to a dispensary in Illinois,” said Jason Erkes, chief communications officer for Cresco Labs, which operates 10 dispensaries in Illinois as well as cultivation operations. “We’re still in the very early stages of this industry in Illinois.”

In fact, the state is on the verge of issuing nearly 200 more dispensary licenses as part of its “social equity” program intended to provide opportunities to people and communities — many with large minority populations — historically affected by marijuana criminalization. The program was stalled due to the pandemic and then a lawsuit.

The Illinois Department of Financial and Professional Regulation recently authorized two of the first social equity permits for Chicago dispensaries.

“With equity as our north star, today marks the first step for retail cannabis operations to begin repairing the devastating harm caused by the failed War on Drugs on communities of color,” J.B. Pritzker said earlier this month when the permits were authorized. “Illinois is set to more than double the number of cannabis dispensaries with every single new license holder being a social equity applicant.”

Permit fees from these social equity applicants will also increase the state’s revenue.

Illinois generates permit fees from dispensary operators, growers and other aspects of the legalized marijuana industry. Since legalization, nearly $38 million in permits and fees has been paid to Illinois.

The state also charges a varying tax rate on marijuana products depending on the potency, and that’s responsible for the lion’s share of revenue generated by legalized marijuana. Of the $850 million amassed by the state from fees and taxes on legalized sales, the marijuana tax is responsible for more than $531 million of that, according to the Illinois Department of Revenue.

Finally, state and municipal sales taxes are also applied to legal purchases. That’s amounted to nearly $281 million for the state since January 2020, while municipalities and counties with dispensaries have received a combined $144 million, IDOR records show.

That includes the suburbs of Addison, Arlington Heights, Aurora, Buffalo Grove, Carpentersville, Lombard, Mount Prospect, Mundelein, Naperville, North Aurora, Northbrook, Rolling Meadows, Rosemont, Schaumburg, St. Charles and Wheeling.

Besides the state’s general fund, revenue from recreational-use sales is funneled into a number of different state programs such as cannabis arrest expungements and state drug treatment efforts. An estimated $15 million is also used to cover state agency costs for oversight of the state’s legalized marijuana program.

About $1.7 million a month also goes into the state’s Local Government Distributive Fund, which directs state revenues back to municipalities and counties based on population.

Through the first 10 months of this year, customers have been buying an average of 2.9 million marijuana-related items a month and spending an average of $42.71 per purchase.

Erkes said traditional smokable marijuana is still the “market leader” among customers, but edibles have gained in popularity because it allows those ingesting it to “manage the effects” with each dose.

“Illinois is very regulated and compliance-focused,” he said. “Several other states have modeled their legalization laws after Illinois and replicated what Illinois has done.”