Illinois Gov. JB Pritzker's administration has projected legal marijuana could generate $1 billion in taxes and fees over 5 years.
CHICAGO -- Illinois needs to be careful estimating revenues from the recreational marijuana business as a number of elements will affect the tax and licensing take, according to an attorney who focuses on the nascent market.
While Gov. JB Pritzker did not include revenue from sales in his $40 billion state budget for the fiscal year ending July 2020, he was "pretty aggressive" in his prediction of income from licensing fees, David Standa, of Locke Lord Chicago's office, told the Cook County Record.
The governor predicts $170 million from dispensary licensing fees for the year. The Illinois Department of Revenue estimates that the business will bring in $1 billion in fees and taxes over five years.
David Standa | Locke Lord
Predicting revenue from the business is necessarily difficult, not least because states are attempting to add to budgets income from an industry that never previously existed, Standa said.
But the experience of other states can help illuminate potential outcomes. Colorado, Nevada, Washington and Alaska all reported an early surge in revenue that beat expectations, while California fell well short. In addition revenues slowed in Colorado and Washington following those initial increases.
Standa identified a number of potential problems Illinois could face when forecasting revenue, particularly in the short term.
These include potentially over-optimistic forecasts for political reasons; predicting just how many consumers will transition from the illicit, non-taxed and likely cheaper product available on the street; the number of municipalities that decide to bar dispensaries; and how Illinois - and particularly Chicago - snares the tourist trade.
"There is not necessarily a right or wrong," Standa said. "It is trying to budget for something that has never occurred before."
In California, many municipalities opted to block dispensaries opening in their towns, leaving pockets across the state where the illicit market continues to flourish, Standa said.
Under the Illinois law, individual cities and towns are free to decide whether to allow cannabis shops, and it is not yet known the extent of the pushback.
Nevada has benefited from the tourist trade, particularly in Las Vegas, where law enforcement and other agencies are highly experienced in dealing with large numbers of people that are essentially in town to enjoy themselves, Standa said.
However, the attorney noted, Chicago Mayor Lori Lightfoot has established an exclusion zone in the city's Central Business District, which includes the Loop and Magnificent Mile.
License owners would have been extremely keen to open dispensaries in the area to tap into the huge tourist market, Standa said, adding it is not clear how that ban will affect overall revenue.