ANN ARBOR – When voters approve legal cannabis, the promise is usually straightforward: tax the industry and return the revenue to communities.
In practice, it’s rarely that simple.
Across the country, states have struggled to turn cannabis tax collections into timely funding for cities, counties, and public services. Ohio’s recent experience is just one example of a broader pattern playing out nationwide.
The Three Most Common Models States Use
Most states rely on one of three basic frameworks to distribute cannabis tax revenue.
1. Percentage Splits
Revenue is divided between the state and local governments using fixed percentages. A portion often goes into the general fund, while the rest is earmarked for cities where cannabis businesses operate.
This model is easy to explain — and politically popular — but can break down if lawmakers later redirect funds.
2. Earmarked Programs
Some states assign cannabis tax revenue to specific purposes such as:
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Schools and education
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Public safety and law enforcement
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Infrastructure or local services
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Substance abuse treatment
While this approach reassures voters, it often slows distribution because agencies must create new programs, rules, and oversight mechanisms before money can flow.
3. Hybrid or Phased Rollouts
Several states delay full distribution until the market stabilizes. Early revenue may be held at the state level to cover regulatory costs before surplus funds are released to local governments.
This is common in the first one to three years after legalization — and often underestimated during ballot campaigns.
Why Cannabis Tax Money Gets Stuck
Delays aren’t usually caused by a lack of revenue. They’re caused by process.
Rulemaking Takes Time
New cannabis markets require extensive regulatory frameworks. Tax distribution formulas often can’t activate until agencies finalize rules, reporting systems, and compliance standards.
Legislative Revisions and Clawbacks
Once revenue starts flowing, legislatures sometimes revise the original promises. Funds may be temporarily redirected to close budget gaps, repay startup costs, or support unrelated programs.
Legal and Political Challenges
In some states, lawsuits over zoning, licensing, or ballot language delay implementation. In others, political shifts change how aggressively lawmakers move to release funds.
Revenue Volatility
Cannabis sales can fluctuate widely in early years. States often hold back distributions until collections stabilize, preferring predictability over speed.
Ohio in a National Context
Ohio’s experience reflects a broader national pattern, as we reported in our recent coverage of cannabis tax delays affecting local governments.
Ohio’s delay in distributing cannabis tax revenue has frustrated cities that planned budgets around anticipated funds. But the experience mirrors what local governments in other legalized states have faced.
In many cases, communities receive less — and later — than originally expected, especially in the first years of legalization. Over time, distributions tend to normalize, but only after regulatory and political hurdles are resolved.
What Local Governments Often Miss
The biggest misconception is timing.
Cannabis taxes are frequently sold as immediate revenue streams. In reality, they behave more like long-term policy instruments. The money usually arrives — just not quickly, and not always in the form communities were led to expect.
For cities and counties, that gap between promise and reality can complicate budgeting, staffing, and public expectations.
The Bigger Picture
Cannabis tax policy may be written state by state, but the challenges are national.
As more states legalize marijuana and revise their tax structures, the same questions keep surfacing:
Where does the money go?
Who controls it?
And when does it actually reach local communities?
Ohio’s story isn’t an outlier. It’s a case study in how complex policy becomes once ballot language meets real-world governance.
