Ohio Cannabis: 18 Months In, Good Tax Policy Meets Under-Licensing

Introduction

On August 6, 2024, Ohio launched adult-use cannabis sales. Eighteen months later, the data reveals excellent policy fundamentals undermined by insufficient retail competition.

The numbers:

• Legal market capture: 32.6% ($1.0B annually)
• Black market: 67.4% ($2.07B untaxed)
• Dispensaries: 196 (serving 1.35M consumers)
• Tax burden: 15-18.75% (optimal range)

Ohio sits between Maryland (49% capture at 24 months) and Illinois (30% capture after 5 years with catastrophic 25-35% taxes). Better fundamentals than Illinois, but underperforming Maryland's trajectory despite superior tax policy.

The constraint: Under-licensing. 6,888 consumers per store versus optimal 1,500 limits retail competition, keeps prices high ($6.22/gram vs $5-7 black market), and slows maturation. Legal market success requires balanced performance across pricing, access, quality, convenience, and enforcement—Ohio excels at pricing but severely under-delivers on access.

Market Performance

Ohio launched adult-use August 6, 2024. Through January 31, 2026:

Sales & Capture:

• Total: $3.47B (18 months combined medical + adult-use)
• Adult-use annualized: $1.0B
• Total Addressable Market: $3.065B (1.35M consumers × 1.0g/day × 365 × $6.22/g)
• Legal capture: 32.6%
• Black market: 67.4% ($2.07B annually)

Infrastructure:

• Dispensaries: 196 (123 launch day, 73 added over 18 months)
• Consumers per store: 6,888 vs optimal 1,500
• Revenue per store: $5.1M annualized
• Distribution: 31% in 6 major metros, 69% statewide

Tax & Pricing:

• Total burden: 15-18.75% (state 15.75% + local 0-3%)
• Retail: $6.22/gram
• Final consumer: $7.39/gram (with typical 17% tax)
• Black market: $5-7/gram

Product Mix:

• Flower: 54.5%
• Concentrates/vapes: 31.7%
• Edibles: 13.5%

Consumption Validation

Ohio's sales validate the 1.0 g/day baseline:

The math:

• Total plant material (18 months): 241M grams
• Flower (54.5%): 131.4M grams → 87.6M grams/year
• Legal consumers: 440,100 (32.6% of 1.35M total)
• Per legal consumer: 0.54 g/day flower (199g/year)

Ohio's consumption matches successful markets perfectly. The 33% capture reflects policy execution (under-licensing), not consumer behavior.

Why 32.6% Capture: Policy Analysis

Tax Policy: Optimal (15-18.75%)

Ohio's tax structure positions the state for complete black market displacement:

Ohio nailed the hardest variable. Final consumer pricing ($7.39/gram with tax) achieves price parity with black market upper range. As retail competition increases, Ohio's pricing advantage will strengthen—following Colorado and Oregon's pattern.

Retail Density: Insufficient

Current state:

• 196 stores serving 1.35M consumers
• 6,888 consumers per store (4.6x worse than optimal 1,500)

Comparison:

Why density matters: Legal market success requires balanced performance across multiple dimensions—price, access, quality, convenience, enforcement. Ohio nailed pricing (15-18.75% tax), but severe under-licensing creates the access constraint. Even optimal tax policy can't overcome "I'd have to drive 30 minutes to a dispensary" when a black market dealer is 10 minutes away. The variables compound: good pricing × terrible density = suppressed capture.

MSO presence suggests competitive future: Ohio's market includes all major multi-state operators (Trulieve, Curaleaf, Ascend, Ayr, Cresco, Green Thumb, Verano) competing directly against each other and local operators. Massachusetts demonstrates this dynamic—heavy MSO presence created intense competition that drove retail prices from $14.09/gram (2019) down to $4.69/gram (2024), a 71.5% decline. As Ohio's market matures and store count expands, direct MSO-vs-MSO competition should produce similar price compression, strengthening the pricing advantage Ohio's tax policy already provides.

Phased rollout context:

• 123 stores opened launch day
• 73 added over 18 months (~4-5/month)
• Regulatory caution: Product restrictions (pre-rolls not permitted until August 2025)

Ohio needs ~900 stores for optimal density. Currently at 22% of target. Reaching 600-900 stores at current pace (4-5/month) would take 7-12 years—far too long.

Market Maturity: Entering Growth Phase

Market development stages:

Phase 1: Launch (0-12 months)

• Consumer discovery
• Infrastructure scaling
• Typical capture: 30-40%

Phase 2: Growth (12-36 months) - Ohio is here

• Word of mouth spreads
• Retail expansion accelerates
• Typical capture: 50-70%
• Ohio at 18 months: Still 32.6%

Phase 3: Mature (36-60+ months)

• Legal becomes default
• Black market economically extinct
• Typical capture: 90-97%

Colorado's trajectory:

• Year 1: ~35% capture
• 18 months: ~45-50% capture
• Year 3: ~70% capture
• Year 6-7: ~100% capture (complete displacement)

The concern: Ohio at 18 months (32.6%) tracks below Maryland (45-49% at similar stage) and well below Colorado's growth phase. Under-licensing actively constrains growth that should be accelerating.

Border Dynamics: Temporary Michigan Influence

Ohio's 67.4% black market includes Michigan border arbitrage:

Current state:

• Michigan retail: $3.71/gram
• Ohio retail: $7.39/gram
• Toledo metro (720K): 10-20 minutes from Michigan stores

But temporary: As Ohio pricing compresses over 18-24 months (following Colorado/Oregon pattern):

1. Retail competition intensifies → prices drop to $5-6/gram
2. Michigan advantage disappears (10-minute drive not worth $1-2 savings)

Maine demonstrates sustainable cross-border: 114% capture (100% resident + 14% tourism/New Hampshire). Ohio's Michigan bleed is temporary price arbitrage, not structural like Maine's tourism economy.

Home Cultivation: Rights Without Market Impact

Ohio's adult-use law (ORC §3780.29) provides generous home cultivation rights:

What's permitted:

• 6 plants per adult (maximum 12 per household)
• Processing and storage of homegrown cannabis
• Transfer of up to 6 plants without remuneration
• Must be in enclosed, secured space not visible from public

Why this won't suppress retail sales:

Markets with strong home grow rights achieve complete black market displacement:

• Colorado: 6 plants per adult → 100% capture
• Oregon: 4 plants per adult → 100% capture
• Maine: 6 plants per adult → 100% capture

The economic reality: Home cultivation costs $815-1,937 per pound when space opportunity cost is included ($720-3,000 annually for dedicated closet/room). Factor in 100+ hours per grow, 25% beginner failure rates, and zero strain variety, and <5% of consumers choose cultivation despite legal permission.

Policy function: Home grow rights serve as consumer protection—providing price discovery ceiling, quality control options, and supply security—without materially impacting retail demand. Ohio's 6-plant-per-person limit (12 per household) accommodates serious cultivators while the overwhelming majority choose retail convenience.

The Path Forward

Ohio faces a clear choice: accelerate retail expansion or accept persistent black market dominance.

Recommended: Double Licensing Pace

Accelerate to 8-10 stores/month:

• Current: 4-5/month → 250 stores by month 24
• Recommended: 8-10/month → 350-380 stores by month 24
• Target: 600-700 stores by month 48

Expected outcomes:

• Month 24: 50% capture, 350+ stores
• Month 36: 70% capture, 500+ stores
• Month 48: 90-95% capture, 650+ stores
• Tax revenue: $100M → $250M+ by year 4

Rationale: Ohio's phased rollout—123 launch stores, gradual expansion, initial product restrictions—was defensible caution. Eighteen months of stable operations validates the market can handle acceleration.

Alternative: Status Quo = Stagnation

Maintaining 4-5/month means:

• Month 24: ~40% capture, 250 stores
• Month 36: ~50% capture, 350 stores
• Permanent 40-50% black market
• Suboptimal tax revenue

Policy Options

1. Accelerate licensing approvals

• Double pace to 8-10/month
• Streamline application review
• Prioritize underserved counties

2. Geographic equity

• Minimum stores per 100K adults by county
• Rural/border community focus

3. Market-driven expansion

• Let demand guide licensing
• Competition fills gaps naturally

The tradeoff: Ohio must choose between incumbent operator margins ($5.1M per store) or consumer access (600-700 stores, $3-4M per store, 90-95% capture).

Conclusion

Eighteen months post-launch, Ohio demonstrates the importance of complete policy execution. The state got the foundation right—15-18.75% tax burden positions Ohio with Colorado/Oregon, not Illinois/California. But stopping at 196 stores (22% of optimal density) leaves $2.07B in annual black market sales.

The assessment:

• Tax policy: Best in class
• Geographic distribution: Better than Illinois
• Pricing foundation: Sound
• Licensing pace: Too slow (4-5/month)
• Retail density: Severe under-licensing (6,888 per store)

The opportunity: Shift from launch-phase caution to growth-phase expansion. Eighteen months of stable operations proves the market is ready. Accelerating to 8-10 stores/month would position Ohio for 70% capture by year 3, 90-95% by year 4—matching successful markets while maintaining operator viability.

The alternative: Maintaining current pace means Ohio plateaus at 45-55% capture like Maryland—reasonable but suboptimal, leaving hundreds of thousands buying illegal cannabis despite legal availability.

Check back at 24 months. If capture remains 35-40% with 250 stores, the constraint is confirmed. If capture climbs to 50%+ with 350+ stores, acceleration works.