Ohioans don’t have to look far for the economic promise of legal recreational marijuana – Michigan’s market sold more than $3 billion worth of cannabis last year, enjoying almost $280 million in total sales in December alone.
With the 2023 passage of Issue 2, Northeast Ohio cultivators and dispensary owners can look to Michigan and other states where adult-use recreational marijuana has been legalized on how to build, and improve upon, a recreational marijuana ecosystem, said area cannabis experts and entrepreneurs.
Even as Ohio lawmakers consider two competing bills that would alter the market, the state can cast a wide net over existing licensing, regulatory and taxation frameworks, noted Julie Winter, vice president of retail operations at Ayr Wellness, a Miami-based cannabis company with a retail shop in Woodmere.
Speed to market is a good starting point, as state officials will be weighing a deluge of license applications in the coming months, said Winter. Michigan, which approved adult-use legalization in 2018, had 2,170 licensed cannabis businesses at the end of 2023. This figure included 751 retailers, 250 processors and 46 marijuana event organizers.
Ohio may not reach such heights due to a statewide cap on retail shops, among other potential changes to the legalization law. Yet, officials would be wise to fully support experienced operators while simultaneously bringing new entrants into the space – such a system will help flatten the “legacy market” of illicit dealers, Winter said.
“This will allow (veteran entrepreneurs) to expand to make sure there are good access points for customers,” said Winter. “Sometimes, markets open up with too limited of the number of dispensaries, and it’s hard to get people to opt out of the legacy market because it’s not convenient for them.”
Veteran owners led the charge in Massachusetts and New Jersey, setting the stage for a cannabis program that benefitted minority operators and other new entrepreneurs through grants and additional funding, said Ayr Wellness vice president of engagement Robert Vanisko.
“On the flip side, New York had such a long layoff between passage of legalization and the actual opening of any stores, what you saw there was a broad proliferation of the legacy market,” said Vanisko. “So that speed to market is important. Having a good base of dispensaries who have storefronts and cultivation capacity certainly helps.”
Ready for an adult-use future?
Ohio currently has 120 licensed medical cannabis dispensaries, according to the state pharmacy board. The recreational market here will not match that of Michigan, where jurisdictions can offer citizens unlimited licenses for the growth, processing and sale of marijuana,said Andrew Rayburn, owner of Eastlake cultivator and processor Buckeye Relief.
Rayburn, who also recently opened an Amplify medical dispensary in Bedford, believes Ohio needs a four- to five-year runway to launch the approximately 275 recreational shops expected for the state. About 50 adult-use dispensaries will be certified social equity participants, a pillar of Issue 2 meant to buoy populations negatively impacted by marijuana laws.
Ohio’s strict governing atmosphere will prevent the type of dispensary “clustering” found in Michigan, where participating towns and counties opened their doors to recreational cannabis. Difficult-to-enforce federal laws prohibiting transport of marijuana across state lines did not stop many Ohioans from making the trip, said Rayburn.
“When Michigan kicked off, they didn’t structure the regulations of the market nearly as tightly as Ohio’s medical market, or what will be our recreational market,” Rayburn said. “There will be zoning or distancing of dispensaries here that is designed against clusters. So, if there are X number of dispensaries in the city of Cleveland, at some point there will be a number where they are cut off.”
Michigan’s “wild west” nature led to more illegal product coming into the state, said Rayburn. In Ohio, the department of commerce inspects Rayburn’s cultivation and processing set-up every 90 days, a schedule enacted in Michigan only during the last few months.
Far from a detriment, the commerce department has become a partner in preparing Rayburn for Ohio’s adult-use future, he said.
“I’m very excited and positive about how the recreational market can be introduced here, because the department of commerce is receptive to industry input,” said Rayburn. “They’re communicative and we enjoy working with them.”
Watch those taxes
Marijuana legalization is forecast to bring in millions in tax revenue to Ohio. According to an Ohio State University Drug Enforcement and Policy Center study released in 2023,the state stands to gain between $276 million to $403 million in taxes by the fifth year of an adult-use cannabis market.
Per Issue 2, about 36% of funds will go to social equity and jobs programming, while another 36% is earmarked for jurisdictions that host adult-use dispensaries. Another 25% is set aside for substance abuse and addiction, with a final 3% utilized for general administrative costs.
Put simply, state lawmakers don’t want Ohioans generating tax revenue for the state up north, said Winter, the Ayr Wellness official. However, Ohio should emulate Michigan’s adult-use tax rate – a 10% excise tax on sales along with a 6% standard sales tax.
“When an excise tax is too high, it incentivizes customers to stay with the legacy market,” Winter said. “The point of adult use is to bring people into the regulated space, so you need fair tax rates to allow them to compete.”
Although Ohio’s proposed tax rate is currently similar to Michigan’s, legislators are contemplating a 15% excise tax at point of sale for recreational marijuana operators. A bad idea, as a higher tax rate equals higher prices for customers, said Verde Compliance Partners executive director Harry Bernstein, whose Cleveland firm works with growers and processors on the registration of their businesses.
“People will pay more for premium and safety than buying from their buddy, but only to a point,” said Bernstein. “If legal cannabis is 20 times what you can buy around the corner, then they’re not going to pay for it. States have to be very careful of that.”
Making consumers comfortable is another way of keeping people from the local dealer, said Winter. Dispensary employees must adequately explain the differences between strains, distinguish between cannabis brands, and make the proper recommendations to customers both old and new, she noted.
Legal states like New Jersey have also developed a retail shopping experience where guests can touch and even “smell-test” available strains, Winter said. All in the name of normalizing cannabis for a new and existing customer base.
“Some people just want to browse over-the-counter rather than talk to someone,” said Winter. “New Jersey is proof of a very successful market.”
