A recent poll shows most Missouri residents support both legal recreational marijuana and sports betting.
Although neither of these industries is currently permitted, both could provide significant tax revenue to The Show Me State.
Kansas did what Missouri could not
Recreational marijuana will appear on the Missouri ballot next month, and its chance of passing looks good. Lawmakers failed to move Missouri sports betting legislation forward last session and could only watch as neighbor Kansas launched sports wagering in September.
Support is high for both legal pot and sports betting in Missouri, according to three recent polls conducted by Fox 4, Emerson College and The Hill.
An impressive 48% of Missouri residents polled support the legalization of recreational marijuana, and 43% of Missourians support legal sports betting.
Sports betting is at least a year away, but with all of its neighbors now offering legal sports betting, Missouri might not be far behind.
With the potential for legal marijuana and sports betting in the offing, what can Missourians expect in terms of tax revenue from both? And, how does that relate to the state’s annual $48.4 billion budget?
Both industries have their caveats
Despite the high support reflected in these recent polls, many Missouri residents still have reservations. And rightly so. The success of such an industry can vary greatly by state. Even states with similar populations produce widely different tax revenue, making narrow projections difficult.
Take Arizona and Washington, for example. Both have similar populations, but Washington produces nearly four times the tax revenue from recreational marijuana. This is partly because Washington is a progressive state with a positive perspective on marijuana. In contrast, Arizona is a conservative-leaning state with a less-favorable image toward marijuana.
Furthermore, tax rates in these two states reflect opposite ends of the taxation spectrum. Arizona places a 16% excise tax on recreational marijuana, which is average; Washington levies a massive 37% tax, the highest in the country.
Our projection will follow the proposed legislation for recreational marijuana’s tax rate of 6%.
Sports betting, much like marijuana, receives varied public support. The sports and gambling landscape in the state (and lack thereof) contribute greatly to this, as does ease of use of the market.
Missouri currently allows riverboat gambling, bingo and the lottery, but no sports betting. Legislators have put forth sports wagering legislation consistently since 2018, and PlayMissouri will follow their lead in projecting sports betting revenue for the state.
Current legislation estimates that Missouri can expect a handle of $150 million in the first year of legalization. This estimate is based on a legislative research committee’s findings using data from other legal markets.
Tax revenue projections will be based on first assessing the adjusted gaming revenue. The AGR is found by taking the handle and subtracting winnings paid out, cost of prizes, voided tickets, unclaimed tickets and promotional bets. Then, we will apply the current legislation’s tax rate (6.75%) to find projected tax revenue.
If passed, recreational weed would feature low taxes
In November, Missouri residents will have the opportunity to vote on Amendment 3, which will legalize recreational marijuana in the state for adults 21 and over.
The state already offers medical marijuana and has done so since 2020. In 2021, the state generated over $200 million in gross revenue from medical sales. The tax rate for medical sales sits at 4%.
If Amendment 3 passes, the state will apply a 6% state tax and “allow local governments to assess local sales taxes of up to 3%” based on the language of the ballot initiative. This is one of the lowest tax rates in the country for recreational marijuana — due mainly to a lack of excise tax placed on recreational weed.
As such, Missourians can expect tax revenue from recreational marijuana to reach $40-$53 million, depending on the local sales taxes tacked on. This projection reflects a launch date of Jan. 1, 2024 for recreational marijuana.
Lawmakers pressured to pass sports betting bill
Missouri has failed to reach the finish line with sports betting legislation every year since 2018. So, proponents should continue to temper their hopes for 2023.
However, with Kansas launching sports betting in September, all of Missouri’s neighbors now have the option to legally bet on sports. State officials in Missouri have received criticism for making an island of inactivity of the state, and this may be enough to push the Legislature to get the job done in 2023.
Our projection figures 2024 as a reasonable launch time frame, and we base our handle projection of $150 million on legislative estimates.
After subtracting winnings, promo bets, voids, cost of prizes and unclaimed wagers, the adjusted gross revenue comes out to roughly $129 million.
HB 1666, sponsored by Rep. Phil Christofanelli, which didn’t pass in 2022, set a tax rate of 10%. Sen. Denny Hoskins, who also has put forth sports betting legislation, set a much higher tax rate of 21%. With so much daylight between the two, a tight projection is difficult to make.
Legislators will likely compromise on a tax rate before the 2023 session, and our projection factors in finding that middle ground. As such, we see Missouri generating between $17-$20 million a year in tax revenue in sports betting’s first full year.
Missouri’s low tax rate leaves much on the table
Compared to other states, Missouri’s proposed tax rates on recreational marijuana and sports betting would be well below the rest of the country. For reference, Maryland (pop. 6.7 million) has 500,000 more people than Missouri, but projects more than three times the marijuana and sports betting revenue.
In the case of marijuana, this is due to Maryland imposing an excise tax on weed, which most states, not including Missouri, have. Moreover, Missouri’s recreational marijuana tax rate stands to be the lowest in the country.
In the case of sports betting, Missouri is projecting a much lower handle than Maryland; roughly a third lower. Tax rates in the two states will likely be comparable.
Legal weed outpaces sports betting
Comparing revenue totals for both, recreational marijuana will likely bring in more than twice as much revenue as sports betting in the first year.
Considered alongside the state’s $48.4 billion budget, both revenue streams would make up 1.5% of the budget at best. Not an insignificant amount but something people should know when setting their expectations.
- Recreational marijuana tax revenue: $40-$53 million
- Sports betting: $17-$20 million
These revenue totals reflect the basic trend in the country where marijuana revenue outweighs sports betting. However, the margin is typically much wider. In established markets like Colorado and Michigan, marijuana revenue is upwards of five to 10 times higher than sports betting revenue.
Such discrepancies with other states in the region around taxation should be acknowledged and addressed by the Legislature in the coming session. At this point, it can be added to the laundry list of issues needing resolution before both marijuana and sports betting become legal in The Show Me State.