Leaders of three Metro East municipalities — Collinsville, Fairview Heights and Sauget — all predicted the start of recreational sales in Missouri a year ago would take a noticeable bite out of their bottom lines.
“There were folks that were obviously traveling across the river to come to us,” said Collinsville City Manager Derek Jackson. “We knew that our volume would likely go down.”
For Collinsville and Sauget, the prediction became reality. The added competition across the river has meant a noticeable drop in sales tax revenue. Collinsville, for example, saw a 38% decrease from 2022 to 2023.
However, Fairview Heights has kept pace with previous years, bucking the expected downward trend for Metro East dispensaries, Mayor Mark Kupsky said.
“To be honest, we've seen little or no impact,” he said.
Kupsky and Fairview Heights city leaders have projected about $1 million in revenue annually on its 3% local sales tax and said they are on pace for fiscal 2024, which will end April 30.
Just like Fairview Heights, Illinois bounced back better than some initially thought.
When Missouri sales started last February, Illinois dispensaries did notice because Missouri is the only border state to Illinois with legal recreational marijuana sales.
Statewide sales in Illinois dropped to $120.5 million last February, according to data from the Illinois Cannabis Regulation Oversight Office. It was the lowest monthly figure the state saw in a year.
Missouri, on the other hand, sold $71.7 million in its first month, according to figures from the state.
Despite the February dip, Illinois broke records last year, totaling $1.6 billion in recreational sales. Missouri, in its first 11 months, sold just over $1 billion, despite Illinois having more than double Missouri’s population.
“There was a one-time drop,” said Justin Leiby, a University of Illinois Urbana-Champaign accounting professor, who helps collect and analyze data for the Illinois Cannabis Regulation Oversight Office.
In February, Illinois tracked about a 30% drop in out-of-state sales. That was largely because of the St. Louis-area dispensaries, Leiby said.
“I would have expected it to be like 70% or 80%,” he said. “I would have expected that nobody is going to be coming from Missouri to Illinois to purchase cannabis simply because a lot of the products are going to be the same, and it's cheaper in Missouri.”
Missouri taxes recreational pot at 6%, and municipalities can take an additional 3%. Illinois takes up to 16.25%, depending on the product, and communities can levy 3.75% locally too.
Despite that, the evidence suggests some Missourians are still buying in Missouri, Leiby said.
Effect on local municipalities
Collinsville, Fairview Heights and Sauget leaders said they planned accordingly with their extra sales revenue.
During fiscal 2023, Sauget made more than $55,000 per month on its 1.5% cannabis tax on recreational sales. During fiscal 2024, that figure dropped to about $23,000, said village Mayor Rich Sauget Jr.
The village used the extra cash to help negotiate a new contract with its police union in 2022 and to replace police vehicles every couple of years.
“When we went through our negotiations, the money looked like it was going to be there, and we knew it'd be there to a point,” Sauget said. “But in the future, we knew it was going to go down.”
That projected dip was factored into the discussions between village leadership and the police department’s union, Sauget said. They were able to find a compromise, amounting to the biggest payroll increase the village had ever done.
“It just made it a lot easier to get through that negotiation,” he said.
Collinsville, the first recreational dispensary in the region, made $1.3 million in sales tax in 2021 and $1.2 million in 2022.
“We were in a pretty fortuitous position as a city,” Jackson said.
The town’s dispensary already sold medical marijuana prior to January 2020 when recreational sales began.
The city used the extra cash to help during the pandemic and has been setting aside the additional funds for capital improvement projects, like repairing sewers, roads and older vehicles.
In 2023, though, revenue generated by its local 3% sales tax dropped to $774,000. Several factors affected Collinsville and Sauget.
Not only did Collinsville and Sauget see more competition from Missouri locations, but other Madison County communities got their own too. Edwardsville’s location opened last May, Alton added one in May, and Troy added another in June.
As for why Fairview Heights’ sales tax revenue didn’t dip as it did in the other two communities, Kupsky wonders if the answer lies partially in Collinsville’s dispensary and one of Sauget’s selling medical marijuana.
Medical is taxed less by the state and is not taxed by the municipalities, meaning there may be less opportunity for Collinsville and Sauget to generate sales tax locally.
Ascend, which operates the Collinsville and Fairview Heights dispensaries, and Beyond/Hello, the operator of both Sauget dispensaries, did not respond to requests for comment about sales since Missouri legalization.
How do Illinois taxes factor into the equation?
Among the other states that border Illinois, Iowa and Kentucky have medical marijuana sales. Wisconsin and Indiana are two of a handful of states that do not have either medical or recreational.
Leiby, the University of Illinois professor, doesn’t expect any border states to act soon either. None of them has a ballot initiative process to put the question to voters. In Wisconsin, voters may favor legalizing cannabis, but getting the legislature to act will be tough, he said.
As of now, Missouri is the only competitor, and there’s a lot less tax west of the Mississippi River.
“Illinois leads the nation in extracting tax revenue from legalized cannabis,” Leiby said. "There’s no doubt.”
As the market gets more saturated — either new states legalizing or existing states adding more shops — the price will likely drop. If they do, there could be less cash to tax, Leiby said.
If its General Assembly were to decrease state taxes, would Illinois get more sales? Maybe, Sauget said.
“Every time you move a lever something else changes,” he said. “Sometimes, the effect that you get isn't what you want."
Jackson wonders if state lawmakers should consider it. For the sake of competition, it would make sense, he said.
“At what point will Illinois residents start going to Missouri, if the state taxes are too much to bear?” he said. “That's a real concern we have.”
Jackson and Kupsky both compare this situation to gas prices in Missouri and Illinois, which are noticeably higher in the Metro East, partially because of higher taxes.
But Kupsky said the tax rate might not influence consumer decisions as much as some think.
He said it may be worth it to buy gas in Missouri if an Illinois resident works across the river or is already running errands there. But just making a trip to Missouri for marijuana or gas for the reduced taxes may not make sense because of the time and cost of travel, Kupsky said.
“How much did you really save?” he asked.
