In November 2023, Ohio legalized adult-use cannabis, and by August 2024, dispensaries began selling recreational marijuana across the state. For dispensary owners, cannabis consultants, and even consumers, understanding how Ohio taxes cannabis is essential. Not only does it affect the cost of the product but it also shapes the way businesses operate and plan their financials. In this article, we’ll explore Ohio’s cannabis sales tax, the revenue it generates, why prices are so high, and how tax deductions are impacted by federal laws.
Introduction: Ohio Cannabis Sales Tax Landscape
Ohio made significant strides toward cannabis legalization in 2023 when voters passed Issue 2, allowing adult-use cannabis. Starting in August 2024, dispensaries began serving both medical and recreational users. Along with the legalization came the question of taxation—how would cannabis sales be taxed, and where would that money go?
Ohio introduced a 10% excise tax on adult-use cannabis sales. This is in addition to regular state and local sales taxes, which can add up quickly for consumers. While taxes contribute to state revenue and benefit various public programs, they are also a key factor in why cannabis often feels so expensive in Ohio. But there’s more to the story—how much revenue is Ohio collecting from cannabis, and how do the costs break down?
How Much Revenue Is Coming In?
As of early 2025, Ohio has already generated over $30 million in revenue from adult-use cannabis sales alone. By December 2024, total sales of recreational marijuana reached $242 million, according to reports from Crain’s Cleveland and the Ohio Capital Journal. This revenue is critical for the state’s budget, and it supports everything from education programs to public safety initiatives.
The cannabis tax revenue has the potential to significantly bolster Ohio’s financial resources. But how much is collected, and where does it go? According to Ohio law, cannabis tax revenue is earmarked for various purposes, including education, local government support, and addiction services. While these taxes provide public benefit, the cost to consumers is felt at the register.
Why Cannabis Costs So Much in Ohio
If you’ve ever wondered why cannabis products seem so expensive in Ohio, the taxes are a big part of the reason. There are several layers of taxation that can quickly add up:
- Excise tax: The 10% excise tax on adult-use cannabis is levied on the sale of all recreational cannabis products. This tax is directly passed on to consumers, meaning the price of cannabis at Ohio dispensaries will reflect this additional cost.
- State sales tax: Ohio imposes a 5.75% state sales tax on cannabis, which also applies to both medical and adult-use marijuana. This is similar to sales tax on other goods in the state.
- Local sales taxes: Depending on the locality, Ohio municipalities may impose their own sales tax on cannabis purchases, ranging up to 2.25%. These local taxes vary from city to city, meaning the price of cannabis can differ depending on where you purchase it.
Together, these taxes can push the final price of cannabis significantly higher than the base cost of the product itself. Additionally, proposed tax hikes could see the excise tax rise to 15%, further elevating the financial burden on consumers and businesses alike.
Can Cannabis Be Written Off on Your Taxes?
Cannabis businesses in Ohio, like those across the U.S., face significant tax challenges, particularly because of IRS Section 280E. This provision prohibits cannabis businesses from deducting most of their operating expenses at the federal level, as marijuana remains classified as a Schedule I drug under federal law.
- Cost of Goods Sold (COGS): While 280E prevents deductions for ordinary business expenses like rent, utilities, and payroll, businesses can still deduct COGS—the direct costs related to the production of cannabis, such as cultivation, trimming, and packaging.
- State-level deductions: Ohio’s tax laws do provide some relief compared to federal regulations. Ohio allows cannabis businesses to take broader deductions under state-level corporate tax laws. However, these deductions do not eliminate the impact of federal 280E restrictions, which still apply for businesses engaged in the production, distribution, or sale of cannabis.
For dispensaries, cannabis cultivators, and manufacturers in Ohio, staying compliant with both state and federal tax laws is essential to avoid penalties. Cannabis businesses should work with CPAs who are experienced in navigating both 280E and state-specific tax rules to minimize their tax burden.
Conclusion & Expert Guidance
Ohio’s layered tax structure means that cannabis prices will naturally be higher due to the excise tax, sales tax, and other local taxes. The state’s cannabis market, while new, is already a significant revenue generator for Ohio, but businesses must manage the high cost of taxes, which directly affects consumer pricing.
Cannabis businesses and consumers alike need to understand the full tax implications and how they can mitigate some of these costs. For businesses, working with a cannabis tax consultant or CPA who understands the intricacies of IRS 280E and state tax laws is critical. Consumers should be aware that high prices are not just the result of the product itself but are influenced by these taxes, which ultimately affect their purchasing power.
Ohio’s cannabis landscape is still evolving, and policy changes—including potential excise tax hikes—could further reshape the market. For those in the industry, it’s essential to stay updated on tax regulations to ensure compliance and optimize financial outcomes.
For any tax-related assistance requirements, Dimov Tax is ready. Reach out to our dedicated team today for financial clarity.