The governor’s office estimates that the adult-use sales of marijuana will bring in more revenue. However, an independent Pennsylvania agency expects to generate significantly lower revenues from legalizing cannabis due to differences on licensing fees.
In a recent report, The Independent Fiscal Office examined the various elements of Governor. Josh Shapiro (D)’s budget proposal includes his calls to legalize cannabis and impose an excise duty of 20 percent on cannabis products.
Shapiro’s Office had projected boldly that, in the fiscal year 2025-2026 the state could expect to see cannabis revenues of $536,000,000. This is assuming lawmakers enacted reforms and started implementation in July.
This was a significant increase from the Governor’s previous budget proposal where only $14.8 million were estimated for the first financial year. The legislator did not, in the end, implement this request.
IFO analysis shows that Shapiro’s projections are far from realistic, even after accounting for licensing fees so high the governor had proposed.
To establish a baseline, independent economists looked at tax policies in different states and the purchasing patterns of adults. After it also considered revenue from licensing fees, it came to the conclusion that, in the 2025-2026 fiscal year, Pennsylvania would generate about $142 million in revenue—almost $400 million less than what the governor promoted.
This disparity can be attributed to different revenue projections for licensing fees. IFO says that, while the governor’s offices projected $510 in revenues from these fees, IFO believes the proposed 25 million dollar fee for medical cannabis dispensaries who want to start serving adults will be prohibitively expensive for the majority of businesses. IFO only expects $59 millions in total licensing fees from the first financial year.
IFO expects to generate more revenue through recreational marijuana than the Executive Budget. However, it will be less with skill games and combined reports. See: https://t.co/bLN8UlyYSI pic.twitter.com/3A4RKiCJzw
— Independent Fiscal Office (@ind_fisc_office) March 4, 2025
However, it noted that the estimate by the tax office was “considerably greater” than what the governor had estimated: $83 millions versus $27.
IFO is assuming that the only four current medical marijuana dispensaries are going to pay the initial 25 million dollars to enter the recreational market. It is higher than any other state. While the fee gives exclusive access to recreational markets for a certain period and allows vertical integration, there would only be five recreational dispensaries. It is unclear whether these advantages justify a much higher fee than the initial $25,000 fee for new firms.
It said that “assuming license and fee payments begin July 1, 2025 and recreational marijuana legal sales start January 1, 2026,” the IFO projected that the proposal would generate $142 million in General Fund Revenues for FY 2020-2020 and $418 for FY 2030-2030. The estimate doesn’t include impacts from increased enforcement or addiction treatment, nor does it take into account other externalities.
The $536 million number in Shapiro’s budget raised some eyebrows. There was also criticism about the proposed 20% excise duty. Some have said that the high tax rate would be counterproductive if it was to encourage Pennsylvanians to keep cannabis revenues in Pennsylvania and compete with state markets.
While there may be conflicting revenue estimates, it is more important to ask whether or not the legislator will move ahead with a proposal for legalization this session and certainly by July.
A Republican Pennsylvania Senator recently proposed the creation of an “legacy fund” that would use tax revenues from the adult-use cannabis sales and gambling to invest in long-term projects for the Commonwealth.
The senator argues that the state, instead of using the tax revenues to finance day-today services and projects, should set aside a part of the tax money for “a source of sustainable prosperity for future generations.”
Pennsylvania House Speaker Joanna McClinton (D) recently said that Democrats are ready to pass a marijuana legalization bill this session, but that the party “will need Republican support” to get the job done—adding that it will be a “heavy lift.”
A second Democratic legislator said that the legislature was “substantially” closer to reaching an agreement on legalizing marijuana. An initial vote on bipartisan cannabis reform legislation could be held as soon as this month.
Polls show that legalization is supported by both Democrats and Republicans, yet the legislation has been slowed down in part due to GOP opposition. But not all Republican members are against the policy change—and one recently said she felt her party should seize the “opportunity to snatch” the issue from Democrats.
Rep. Rick Krajewski (D)—who announced in December his intent to file a legalization measure alongside House Health Committee Chair Dan Frankel (D)—also recently said the policy would provide for “more responsible usage” of cannabis, compared to the status quo that’s left adults either buying from the illicit market or traveling across state lines to get regulated products.
Separately last month, the Pennsylvania House approved a bill sponsored by Frankel that’s meant to strengthen safety standards and oversight of the state’s medical marijuana program as lawmakers work to advance adult-use legalization.
Pennsylvania’s medical cannabis program, which was implemented nearly a decade earlier, has now been sent to the Senate. Lawmakers say it is needed to improve the testing compliance, the product audits, the lab inspections and other aspects of this industry.
Meanwhile, Pennsylvania Democratic lawmakers recently introduced a bill that would allow farmers and other small agriculture operators to sell marijuana they cultivate to existing growers and and processors if the state moves to legalize adult-use cannabis.
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Also, in a video interview released last month, the governor emphasized that the state is “losing out” to others that have already enacted adult-use legalization, while maintaining a policy that’s enriched the illicit market.
I think this is a matter of liberty and freedom. “I mean, people should be allowed to smoke in a legal and safe way if they want to,” said he. “We should shut down the black market—and, by the way, every state around us is doing it. Pennsylvanians pay their taxes and drive into other states.
Pennsylvania’s Republican attorney general recently said he wants to be a “voice for potential public safety risks” of enacting the governor’s proposal—though he said his office would be ready to enforce the new law if lawmakers did vote to pass it.
The state’s agriculture secretary separately told lawmakers that he’s fully confident that his department is in a “really good” position to oversee an adult-use marijuana program if lawmakers act.
Meanwhile, in February, top Pennsylvania police and health officials told lawmakers they are prepared to implement marijuana legalization if the legislature moves forward with the reform—and that they stand ready to work together as the details of legislation to achieve it are crafted.
Amid the growing calls for marijuana legalization in Pennsylvania, a GOP state senator said prohibition has been a “disaster,” and a regulated sales model for cannabis—similar to how alcohol and tobacco are handled—could serve as an effective alternative.
A Republican Pennsylvania senator also recently defended the push to legalize and regulate marijuana, calling it “the most conservative stance” on the issue.
A recent survey shows Pennsylvania voters prefer a model in which cannabis is sold through licensed private businesses rather than a state-run store system, as some lawmakers have pushed.
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