R.I. pot shops can’t compete if they can’t reach customers. That is costing the state revenue.

Rhode Island’s budding recreational marijuana industry has a marketing problem. Just ask Jonathan Leighton, general manager of Mother Earth Wellness.

“Most people in Rhode Island still don’t even know that it is legal recreationally,” said Leighton, whose Pawtucket dispensary is one of seven licensed compassion centers allowed to sell recreational and medical marijuana. 

His shop sits right off I-95 where billboards advertise pot shops over the state line in Massachusetts. Leighton would promote this way too if he could.

Without a state-run Cannabis Control Commission, the Ocean State is powerless to promote its own weed-based wares. That’s hurting the bottom line.

The $3.4 million in state and local tax revenue collected from retail cannabis sales in the four months since recreational cannabis launched in December is 25% behind state budget projections for fiscal 2023. If sales continue at this rate, the state will come up $2 million short of the expected recreational marijuana revenue, with just enough to cover the $5.9 million startup costs.

The data presented by Tax Administrator Neena Savage on May 3 as part of the state’s ongoing Revenue and Caseload Estimating Conference has lawmakers denouncing the governor for delaying creation of the panel meant to regulate and promote the state’s nascent retail cannabis market.

“We’re pretty frustrated,” said Sen. Joshua Miller, a Providence Democrat who sponsored the Senate bill to legalize recreational cannabis. “The law was passed early enough we could have had this in place a year ago.”

The law passed last year legalizing recreational marijuana called for a three-member Cannabis Control Commission – with members appointed by the governor – to take charge of licensing and regulation for recreational and medical marijuana, including granting licenses to up to 24 more retail pot shops. Nearly a year later, Gov. Dan McKee still hasn’t named the commission members, despite receiving a list of nominees from House Speaker K. Joseph Shekarchi last summer.

Without the extra pot shops, Miller wasn’t surprised by the sales and tax revenue figures.

“For seven stores, it’s not so bad,” he said. “The issue is we thought we’d have more shops open by now.”

Representative proposes temporary fix

Massachusetts raked in $129.4 million in recreational marijuana sales in March, according to the state’s Cannabis Control Commission. Rhode Island, by contrast, reported $5.4 million in sales from retail pot that same month, according to the state Office of Cannabis Regulation.

Recreational marijuana sales is subject to a combined 20% in state and local taxes, with 17% of that (in sales and excise taxes) going to the state, and 3% returned to the municipalities where sales took place. 

Rep. Scott Slater, a Providence Democrat, is attempting to help Rhode Island gain a piece of Massachusetts’ reefer riches with legislation that would let the Office of Cannabis Regulation take on advertising responsibilities temporarily until the Cannabis Control Commission is formed.

Slater’s bill was passed out of the House Commerce Committee May 2 and is slated for floor vote on Tuesday.

Among its supporters is Matthew Santacroce, the chief of the state’s Office of Cannabis Regulation. In a letter to the House Commerce Committee, Santacroce stated that the out-state-cannabis advertising within Rhode Island is creating clear disadvantages for Rhode Island.

“This will level the playing field for in-state businesses and better reflect the new reality of the adult-use market here in Rhode Island,” Santacroce wrote of Slater’s bill.

There is no Senate companion bill as of Monday, though Miller said he plans to introduce it after the House vote.

‘Not a budget breaker’

Even so, highway billboards are unlikely to overcome the $2 million gap in marijuana tax revenue by the time the fiscal year ends on June 30. But that’s not a dealbreaker for the state or the cities and towns that receive a portion of the revenue in local taxes.

The city of Warwick, which received the largest share of local tax revenue ($128,400 for the first three months), took a conservative approach when creating a spending plan for the year ahead, said Peder Schaefer, the city’s finance director. Schafer declined to say how much tax revenue from pot sales the city included in its upcoming fiscal 2023 budget proposal – which has not been published as of Monday –  but stressed it was “conservative.”

“We have a $340 million budget, so this is not critical,” Schaefer said. “It is nice to help us offset some revenue losses in other areas like real estate transfer taxes or refinancing. But this is not a budget breaker or a budget maker. It’s one ingredient in the recipe.”

Similarly, $3 million in state cannabis sales tax revenue (separate from what’s brought in under the 10% state excise tax) is less than 1% of the $1.6 billion the state expects to bring in across all sales taxes for fiscal 2023. It’s so small that a change might be “glossed over” by budget crunchers in revising their budget estimates for fiscal 2023, according to a statement from Paul Grimaldi on behalf of the Office of Revenue Analysis. 

Slater also stressed that the intent behind legalizing recreational marijuana wasn’t solely profits-based.

“For me, it was not just about tax revenue,” Slater said. “It’s also a better policy, health-wise to have a regulated market.”

Leighton’s company is doing its best to get the word out – taking part in community cleanups and tree plantings to show its commitment to the neighborhood. He hoped business would improve once the state Cannabis Control Commission was up and running.

“We look forward to having a dedicated regulatory body that can actually engage and be very responsible to the needs of this industry,” he said.

Lamar Advertising in East Providence has three Massachusetts cannabis dispensaries as clients who advertise on billboards on I-95. General manager Michael Murphy said the company has received some inquiries about advertising Rhode Island-owned cannabis shops. But they are on hold for now while the wait continues for the commission to be appointed.

“This is part of the business,” Murphy said. “You just have to be patient.”

McKee’s office did not respond to questions about the delays in appointing members of the Cannabis Control Commission.

Matt Touchette, a spokesman for Rhode Island Commerce, sent an emailed statement on McKee’s behalf about preliminary tax revenue.

“Cannabis tax revenue projections reflected a best estimate based on the experience of other states that have legalized adult-use recreational marijuana. With Rhode Island now in the game, there is optimism that the retail market will generate more tax revenue in the long run.”