It’s common for states that legalize adult-use cannabis to bring in hundreds of millions of dollars in tax revenue that would otherwise flow to the illicit market.
$10 million in taxes leak into Illinois from neighboring states every month. Illinois is happy to take it.
What’s less well known is how much tax money prohibition states are giving up to their legal-state neighbors. In other words: How many people in prohibition states are traveling to legal states to buy state-licensed cannabis? Data on that question is hard to come by—with one exception.
Alone among the legal states, Illinois tracks the amount of monthly sales made to out-of-state visitors.
Illinois is bordered by five prohibition states: Wisconsin, Iowa, Missouri, Kentucky, and Indiana. And guess what: Out-of-state visitors buy a lot of legal weed in Illinois.
That’s money they might otherwise spend in their home states. How much tax money is bleeding out of prohibition states? Thanks to Illinois, now we know.
Visitors made 26% of purchases last year
In 2020, roughly one in four adult-use cannabis purchases in Illinois were made by out-of-state residents. That year, Illinois brought in $217 million in total tax revenue (cannabis taxes plus state sales tax) on $669 million in adult-use cannabis sales.
That means out-of-state visitors deposited $56 million in the Illinois state treasury in 2020. And that was during a pandemic year—when most people limited their out-of-state travel.
Last month it hit 30%
This year, with Covid shutdowns receding, the visitor count is rising. In March 2021, out-of-state purchasers accounted for more than 30% of Illinois’ $109 million in adult-use cannabis sales. That means consumers from other states gave Illinois $10.5 million in tax revenue in a single month.
Bordering states are on track to give $120 million to $150 million to Illinois this year.
Overall sales are expected to rise in Illinois as more stores open this year. So Wisconsin, Iowa, Missouri, Kentucky, and Indiana are on pace to hand over $120 million to $150 million of their collective tax dollars to Illinois in 2021.
Border stores are quite popular
Not all of those visitors come from bordering states, of course. But data from other legal states, including Washington and Oregon, have shown that stores along the border with a prohibition state—Idaho—tend to do an inordinate volume of sales.
That’s something that other states in similar situations are starting to think about. Pennsylvania will soon be bordered by two legal states, New Jersey and New York. Utah will soon be bordered by four legal states, Nevada, Arizona, New Mexico, and Colorado. New Hampshire is already seeing tax revenue flow across the border to legal Maine and Massachusetts. And Ohio is seeing a fair amount of tax money leak north into legal Michigan.
We don’t know exactly how much tax revenue is leaking out of those prohibition states into neighboring legal states. But thanks to Illinois and its data, we now know it can easily hit $10 million per month. And that may move some votes toward legalization in state legislatures where budgets are tight.