Online sports betting could launch any day now in Maryland, promising a substantial increase in tax dollars for the state. Meanwhile, residents have the chance to vote on legalizing recreational marijuana this November.
Both industries have proven to be cash cows in other states, but which might generate the most tax revenue in Maryland?
UPDATE: Maryland voters approved a constitutional amendment to legalize recreational marijuana during the Nov. 8 election, and it could become legal as early as July 2023.
Sports betting & marijuana could benefit Maryland tax dollars
The latest news suggests that online sports betting in Maryland is gearing up to debut this year. While there’s still no firm date, regulators are confident in a debut before Dec. 31.
With both online wagering and marijuana revenue streams on the potential horizon, policymakers will soon be busy budgeting for new income streams. Revenue from such funds could benefits:
- education funding
- property tax relief
- health insurance reductions
So, in a state that passed a $58 billion budget in March, what can Maryland residents expect in tax revenue from sports betting and recreational marijuana?
Online sports betting revenue projections
When assessing potential Maryland tax revenue, a number of variables come into play. One of the biggest unknowns is Maryland’s hold percentage – the amount that a sportsbook keeps for every type of wager they offer.
Online sports betting could very well launch before New Year’s Day, However, for the sake of these projections, we’ve factored in 2023 alone.
PlayMaryland expects Maryland bettors to wager roughly $4.3 billion in the coming year. If we factor in a hold or 7-8%, this could result in a revenue of $316-$346 million for sportsbooks before taxes.
If we use the national hold average of 7.3%, we can drill down further and put the total right at $325 million.
Maryland will then tax these sportsbooks at a rate of 15%. This means the state could ultimately be looking at $47-$51 million in tax revenue for the coming year.
Recreational marijuana tax projections
A variety of variables — such as regional demand and tax rate — make it difficult to make a precise projection on legal marijuana in Maryland.
For example, Arizona and Washington have similar populations. But Washington produces nearly four times as much tax revenue from marijuana as Arizona. Tax rates between the two states reflect opposite ends of the taxation spectrum. Arizona places a reasonable 16% excise tax on recreational marijuana, whereas Washington levies a whopping 37% tax — the highest in the country.
Adam Hoffer, director of excise tax policy at the Tax Foundation, spoke with PlayMaryland about projecting marijuana tax revenue.
“Projecting tax revenue based on per capita dollars is useful when extrapolating to other states. Obviously, the tax collections will vary based on the local demand and the tax rate. A well-designed tax would raise around $20 per capita, though some greedy legislators could easily get two to three times that revenue from punitive rates that are set too high.”
Our projection uses this $20 per capita number to present a fair and plausible revenue value for the state.
Projection totals: weed could outweigh betting
A quick glance at projected totals makes it clear that legal recreational marijuana bears a much greater financial impact on Maryland than sports betting.
PlayMaryland projections suggest annual tax revenue for the two industries could look something like this:
- Sports betting – $51 million
- Marijuana – $134 million
Recreational marijuana revenue could bring 274% more revenue than sports betting in Maryland. In states like Colorado and Michigan with established sports betting and recreational marijuana markets, that number has clocked in even higher.
Assuming Question 4 passes next month, legal recreational marijuana sales may still be a few years away. Lawmakers have been reluctant to agree on a regulatory structure. This could result in a launch date as late as 2025 for recreational marijuana.
For the sake of comparison though, we will assume marijuana is legalized and launched in 2023. Using the Centers for Disease Control and Prevention’s population tracker tool, Maryland’s projected population for 2023 will be roughly 6.7 million.
Using that population total and factoring in a $20 per capita revenue for recreational marijuana tax revenue, Marylander’s could expect marijuana tax revenue in the neighborhood of $134 million a year.
Sports betting & marijuana could ease Maryland tax burden
A booming sports betting business and budding marijuana industry could surely ease some financial burdens put in place by the state’s $58 billion budget.
Take public education as a possible outlet. The Kirwan Commission, a group recommending numerous important upgrades to the Maryland public school system, is looking for an eye-watering $4 billion a year to revamp and maintain schools.
The addition of these two new revenue streams is certainly not a drop in the bucket, and politicians who use this excuse to argue against legalization are clearly posturing. However, Marylanders should see these totals in relation to each other to set appropriate expectations for how their tax money works.