Ohio Releases $11M in Withheld Cannabis Tax Revenue to Municipalities

Ohio has started distributing nearly $11 million in cannabis tax revenue to municipalities that host dispensaries, more than a year after the funds were first withheld from local governments.

The payments, mandated under Ohio's medical cannabis program statute, were supposed to flow to cities and counties that opted into the state's cannabis market. Instead, the revenue sat in state coffers since early 2023, according to WCMH reporting.

"These are funds that local governments budgeted for and expected," said one municipal finance director who requested anonymity. "The delay created real planning challenges."

The Withholding

Ohio's medical cannabis program requires the state to share a portion of tax revenue with local governments that allow dispensaries within their jurisdictions. The revenue-sharing provision was designed to offset local costs associated with hosting cannabis businesses and to incentivize municipalities to participate in the program.

But in March 2023, state officials acknowledged they had been holding back the distributions. The Ohio Department of Commerce, which oversees the medical cannabis program, did not provide a clear explanation for the delay at the time.

The $11 million represents accumulated revenue from sales at Ohio's 57 active dispensaries. Medical cannabis sales in Ohio have grown steadily since the program launched in 2019, with patients purchasing over $400 million in products in 2023 alone.

Municipal Impact

The delayed payments affected dozens of municipalities across Ohio. Cities like Columbus, Cleveland, and Cincinnati—which host multiple dispensaries—were owed hundreds of thousands of dollars each.

Some local officials had begun exploring legal options to compel the state to release the funds. "We were seriously considering whether we needed to take legal action," one city council member told reporters last summer. "This is money our residents approved when they voted to allow these businesses."

The revenue-sharing formula allocates funds based on the number of dispensaries operating within a municipality's boundaries and their sales volume. Smaller communities with single dispensaries typically receive between $50,000 and $150,000 annually, while larger cities can see distributions exceeding $500,000.

What Changed

The Ohio Department of Commerce began processing payments in recent weeks without issuing a formal announcement. Several municipal finance departments confirmed receiving deposits in late December and early January.

State officials have not publicly addressed what prompted the release of funds or whether interest will be paid on the withheld amounts. The department did not respond to requests for comment on the distribution timeline.

The payments come as Ohio prepares to launch its adult-use cannabis market following voter approval of Issue 2 in November 2023. The adult-use program is expected to generate significantly higher tax revenues, with projections ranging from $300 million to $400 million annually once fully operational.

Looking Ahead

Municipalities are now watching to ensure the state maintains regular distribution schedules going forward. The adult-use program includes similar revenue-sharing provisions, along with additional local option taxes that cities and counties can levy.

"We need confidence that these payments will be consistent and predictable," said a representative from the Ohio Municipal League. "Local governments rely on this revenue for budgeting and planning purposes."

The state's Division of Cannabis Control is expected to begin accepting adult-use license applications in mid-2024, with sales potentially starting by fall. Existing medical dispensaries will be allowed to serve adult-use customers once they obtain dual licenses.

For now, local officials are relieved to finally receive the funds they were promised. But questions remain about accountability and whether the state will implement better systems to prevent similar delays in the future.

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This article is based on original reporting by ganjapreneur.com.