Cannabis Bills Moving – Local Revenue Share Remains Smallest in Nation

Both the House and Senate have advanced a version of the broad Cannabis Reform legislation anticipated to pass this session – and while different, both bills would provide far less revenue to support local government implementation than any other State that has followed the path of state-level legalization for adult use cannabis.

Two bills were cross-filed to effect Cannabis Reform – and both have advanced through their initial committees, representing two differing views on licensing, oversight, and many other questions about the newly legalized industry in Maryland. Voters approved the adult use legalization by a constitutional amendment in November 2022.

SB 516 was debated on the Senate floor on Thursday morning, and a final vote there is pending. HB 556 has passed the House and is in the Senate. The two bills do not contain identical provisions, meaning some reconciliation is on the horizon – potentially a “conference committee” to resolve differences in the days ahead.

Among the matters of interest to local government is the tax on cannabis sales and the revenues generated for local government services. The path to this year’s proposal has been peculiar.

A proposal introduced by General Assembly leaders in the 2022 session offered local governments the option to levy a local tax at the point of sale, up to a 3% rate. That model – state-authorized local taxes – is the most common model employed by states that have enacted similar laws. However, the 2023 bills were introduced with a different tax scheme: replacing the local tax authority with a distribution from the state sales tax.

This revised method mirrors that used in Michigan and New York. Those states recognize that public services, including those connected to implementing and overseeing the newly legalized marketplace, are supported by a combination of State and local governments. For example, Michigan shares 30% of its revenues with its county and municipal governments, and New York shares roughly 31%. Meaning, on a single purchase of $100 of cannabis in those states, the local government would receive $3 in Michigan and $4 in New York.

As introduced, however, the share of Maryland revenues sent to local governments is far, far lower:

A 1.5% distribution of the state tax revenue directed to local governments in the original bill translates to a much lower local funding source. On the same $100 purchase, the original bill and the House-advanced proposal would provide the local government a mere 15 cents.

The Senate bill, currently advancing on the floor, changes that local segment to a 5% share, yielding 45 cents on the same $100 purchase.

No State with functioning local governments has created a system that captures such an overwhelming share of general revenue for State-only purposes.

While arguments for the local government share have been characterized as a “money grab,” they are anything but. Local governments will provide the scaffolding required to stand up the adult-use cannabis industry: zoning, licensure, and maintenance or adjustment of physical infrastructure (roadway setbacks, signage, etc.), among other supporting efforts – totaling in the millions of dollars across 24 jurisdictions. The revenue share from cannabis sales will help offset some of these additional and necessary expenses but will in no way pad local coffers, as the term “money grab” would suggest. Instead, it would supplement local budgets as counties and municipalities devote fiscal and personnel resources to this effort, as directed by the people of Maryland.

The two chambers have until the end of the 90-day session on April 10 to enact one version of the bill through both chambers. Typically, areas of difference reach a resolution by adopting either the Senate or House proposal or some middle ground between them. So, a local revenue share that is anywhere near that applied by virtually every other state legalizing adult-use cannabis now appears unlikely in this session.

Michael Sanderson

Executive Director Maryland Association of Counties