Motley marijuana laws drive consumers — and revenue — across state lines

By: - January 16, 2023 4:00 am

(Getty Images)

SOUTH BELOIT, Ill. — Less than half a mile south of the Wisconsin border in Illinois, the Sunnyside Cannabis Dispensary bustles with activity. Cars with license plates from Wisconsin, Minnesota and other pot-banning states slide in and out of the shop’s expansive parking lot.

Ballot propositions in five states, including Arkansas, would legalize marijuana, adding to a growing list of states defying federal law. This photo is from the 2021 march in Washington against the federal laws that criminalize cannabis.(Alex Wong/Getty Images)
(Alex Wong/Getty Images)

The bright and airy retail store is an easy hop off Interstate 90, which spans the nation’s entire northern tier. For many westbound customers, Sunnyside is the last chance to legally buy recreational, or “adult-use,” marijuana products until Montana, more than 900 miles away.

And heading south from this truck-stop town to the small Illinois city of Metropolis, dispensaries likewise hug the Prairie State’s boundaries with Indiana, Iowa and Kentucky, where pot sales are outlawed.

State lines delineate the vastly varying marijuana regulations across the Midwest. Illinois, Michigan and, since December, Missouri allow recreational marijuana, while neighboring states have some of the strictest laws in the nation.

The contrasting statutes create some law enforcement concerns in states where marijuana is outlawed — when residents legally use marijuana just across the border or bring it back home. But many elected officials in those states say the larger problem is the loss of potential revenue from an industry that could bring visitors, jobs and tax dollars.

Public support for the liberalization of marijuana laws in this region is growing, following national trends. Much of the debate is economic, as restrictive states see their residents paying marijuana sales and excise taxes to neighboring states.

In Illinois, which legalized adult-use marijuana in 2019, out-of-state residents account for 30% of recreational marijuana sales, according to state filings. Sales in the state have risen from just more than $400 million in fiscal 2020 to more than $1.5 billion in fiscal 2022.

Tax disbursements to local Illinois governments in fiscal 2022 reached $146.2 million, a 77% increase over 2021.

Illinois law mandates that a fourth of marijuana tax revenue be used to support communities that are “economically distressed, experience high rates of violence, and have been disproportionately impacted by drug criminalization.”

The significant revenue is a big pull for states that outlaw marijuana to consider changing their policies. But some opponents to legalized cannabis worry about what other effects marijuana sales could have on their communities.

Law enforcement challenges

On a misty Saturday morning in Niles, Michigan, nearly 20 cars waited for the 10 a.m. opening in bar-coded parking spots outside Green Stem Provisioning, which offers medical and adult-use products.

License plates were nearly evenly divided between Michigan and Indiana at the dispensary, which is 5 miles north of South Bend, Indiana.

Staffers at the family-run dispensary delivered a wide range of products, from “flower,” the traditional form of recreational pot, to edibles, tinctures and baking ingredients such as Sugar Rush, which offers bakers 100 milligrams of THC. Customers ranged in age from young adults in their 20s to those over 65, who receive a 10% discount.

While some out-of-state residents were reluctant to discuss their trip to Michigan for marijuana purchases, H.L., who arrived from Indiana, agreed to speak if not fully identified.

He said he’s been buying marijuana in Michigan for about eight months. Despite reports that Indiana police might be watching the border for those returning from Michigan, H.L. said, “I’ve had no trouble. No problems.”

A few blocks down 11th Street in Niles, Primitiv, a company founded by former NFL players Calvin Johnson and Rob Sims, served a steady line of customers at a drive-thru. Farther up the street, Southland Farms, which harvests its products in five grow rooms, opened its “Budtique” in July.

Niles, a city of about 12,000 residents, rejected marijuana sales in 2018, but its city council reversed course 11 months later. While some in the community raised fears of crime related to the new industry, Niles Police Chief Jim Millin said he “really hasn’t seen an increase.”

Many police encounters, he said, have involved users who don’t understand — or claim not to understand — the limits of the law, including where they can use marijuana or how much they can possess. In many cases, officers now write citations for infractions that earlier had required arrests.

Driving while using is barred by Michigan law, and drivers found under the influence face steep criminal penalties.

People in dozens of municipalities across six states will vote on marijuana measures.

The dispensaries, meanwhile, have generally settled nicely into the city, according to Millin. They’ve contributed to civic efforts, including sponsoring local festivals, donating to local causes and responding to city concerns.

“They’re pretty good about working with the city,” Millin said.

Indiana, which has some of the nation’s toughest marijuana laws, borders two states (Illinois and Michigan) with recreational sales.

“I try to enforce the laws as best I can based on what Indiana wants us to do,” said Ken Cotter, prosecutor for St. Joseph County, Indiana, along the Michigan border. The region is known as Michiana.

“I was worried that if Michigan legalizes marijuana, folks from Indiana might want to go to Michigan, get the marijuana and drive back — that’s one thing. But if they then went to Michigan, legally smoked it there and then drove [under the influence], that’s a whole different ball game,” Cotter said.

Cotter, a Democrat, said there has not been an increase in marijuana possession cases in his jurisdiction since Michigan legalized recreational sales in 2018, but that marijuana-based DUI charges have “increased dramatically.”

But Cotter was cautious not to draw broader conclusions from his jurisdiction of 270,000 residents, stressing that more data and reporting is a pressing public safety need.

That’s in line with an expansive 2021 report from the Cato Institute, a libertarian-leaning think tank based in Washington, D.C., suggesting it’s too soon to know all the effects of the changing laws. The report noted that early studies, including those on public safety, have varied conclusions, and that data comparisons at this point can be problematic.

Changing attitudes and big money

A recent survey by a national law firm finds some Midwestern states among those least favorable to the cannabis industry.

Indiana’s laws rank 49th among states and the District of Columbia in receptiveness to cannabis, according to Thompson Coburn, a national law firm that has a cannabis practice. Wisconsin stands 47th, Kentucky 41st and Iowa 38th. In Wisconsin, for example, the first conviction for a small amount of marijuana possession is a misdemeanor, but any subsequent possession charge is a felony.

But public opinion in some of those states is changing, and they see neighbors cashing in on the trend.

Michigan, for example, allows municipalities to opt in or out of the marijuana business. As of November, 130 municipalities have opted into the adult-use side, and 1,377 have opted out, according to the Michigan Department of Licensing and Regulatory Affairs.

In Michigan, 15% of excise tax revenue goes to counties and another 15% to municipalities that opt-in with retail stores or other marijuana-related business. The lion’s share goes statewide to K-12 education (35%) and roads and bridges (35%). Adult sales during 2022 were projected to top $2.28 billion, raising more than $335 million in excise and sales taxes.

Michigan does not track sales figures by non-residents, but some border dispensaries report that about half their sales are to out-of-staters.

Those dollars are hard to ignore.

In Indiana, Cotter said the political status of marijuana is fluid. The 2022 Hoosier Survey by Ball State University found 56% of residents surveyed approved of adult-use marijuana. That figure is up from 39% in 2018.

In Minnesota, where Democrats now control the governorship and both chambers of the legislature, lawmakers introduced an adult-use bill on Jan. 5. Democratic Gov. Tim Walz quickly tweeted his support: “It’s time to legalize adult-use cannabis and expunge cannabis convictions in Minnesota. I’m ready to sign it into law.”

And in Wisconsin, Democratic Gov. Tony Evers told Wisconsin Public Radio in December that recreational marijuana will “be in the budget,” but that a hostile GOP-led legislature stands in the way.

“Even though the people of Wisconsin by huge numbers in polling support recreational marijuana in the state of Wisconsin, I just don’t know if the Republicans are there yet,” Evers told WPR. “All I know is that there is talk on the Republican side, from what I’ve heard, around medicinal.”

A 2022 poll by the Marquette Law School found 61% of Wisconsin voters favor legalization.

Iowa appears unlikely to move toward liberalization of its marijuana laws, despite a Des Moines Register poll from 2021 showing 54% of Iowans supporting the legalization of adult-use products.

“This is wildly popular. There are tax benefits. There are opportunities for economic growth in the state, not losing revenue to other states,” said Iowa House Democratic Leader Jennifer Konfrst, according to RadioIowa. “I’m just getting the sense that there’s not a lot of appetite for it at the leadership level or in the governor’s office.”

Iowa Republican Gov. Kim Reynolds opposes recreational marijuana, and the GOP controls the state legislature. House Speaker Pat Grassley told RadioIowa that legalization was not a campaign issue in 2022.

“That is not what we heard from Iowans in this election,” Grassley told the outlet.

But as more states move to legalize adult-use marijuana, the windfall for the early adopters will likely diminish, according to a 2017 working paper by Benjamin Hansen, Keaton Miller and Caroline Weber from the University of Oregon. They noted that sales at Washington dispensaries near the Oregon border fell by 36% when Oregon began adult-use sales.

“These cross-border incentives may create a ‘race to legalize,’” they wrote.

This story was originally published in Stateline, an initiative of The Pew Charitable Trusts. Read the original here.

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