Gridlock in the THC debate is the fortunate winner
Chicago’s hemp fight looked at first like another City Hall quarrel over vice, revenue and regulation. In one corner stood Mayor Brandon Johnson, searching for new money and proposing to tax intoxicating hemp products. In the other stood a City Council majority, alarmed by gummies, vapes and snacks sold in smoke shops, gas stations and corner stores, and determined to ban most of them outside the licensed cannabis system. Both sides had a case, neither one of them a particularly strong one. Both sides overreached. In the end, neither side won. Chicago is better off with the stalemate.
The issue was not ordinary hemp lotion or non-intoxicating CBD cream. No reason to tax placebos. The fight was over the new market in hemp-derived intoxicants: delta-8, delta-10, THCA, hemp-derived THC gummies, drinks, flower, vapes and similar products that flourished after the 2018 federal farm bill opened a loophole wide enough for an industry to drive through. These products were not sold only in licensed cannabis dispensaries. They appeared in neighborhood stores, liquor outlets, smoke shops and convenience stores, often with less testing, weaker labeling, and looser age controls than products sold through Illinois’ heavily regulated cannabis system.
Johnson’s approach was fiscal and regulatory. His administration floated a separate hemp tax, reportedly $2 per item, projected to raise about $10 million. Chicago currently taxes cannabis at six percent with three percent apiece from the city and county. That would have put hemp into Chicago’s familiar vice-tax architecture. The city already taxes liquor. It taxes cigarettes. It taxes cannabis sold by dispensaries. It taxes amusements so broadly that concerts, sporting events, streaming entertainment, and now, online wagering, increasingly resemble the city’s most productive sin-tax frontier. Hemp, from this point of view, was not a moral emergency. It was another taxable habit.
That argument had a certain Chicago logic. The products were already being sold. Consumers were already buying them. The ordinary sales tax already applied. A separate hemp levy would have recognized the reality of the market while extracting revenue from it. If the city was not going to eliminate demand, why not regulate the sellers, require age verification, mandate testing and labeling, and collect money from the trade?
But Johnson’s tax plan had a weakness. It looked like City Hall was monetizing a public health concern before proving it could control it. The $10 million estimate was not transformative in a city budget measured in billions. It was a rounding error with a press release. Worse, a per-item tax would have been clumsy. A $2 tax on a cheap package of gummies is quite different from a $2 tax on a more expensive product. It would have encouraged evasion, suburban purchases, online sales, and creative packaging. Chicago has never lacked entrepreneurs when tax avoidance is the business model. You don’t want to encourage a black market.
The City Council’s approach was more punitive. Sponsored by Ald. Marty Quinn and supported by a majority that framed the measure as child protection, the ordinance would have banned the sale of most intoxicating hemp products by city-licensed businesses outside state-licensed cannabis dispensaries. The argument was simple: if a product gets you high, it should not be sold next to chips, cigarettes, and lottery tickets. Supporters pointed to packaging that resembled candy or snacks, uncertain potency, weak testing, and easy access by minors. Of course those who own the dispensaries are politically connected. The City Council passed the measure by a 32–16 margin.
The City Council’s bill was not a clean public health measure either. Its carveouts exposed its politics. Hemp beverages, beverage additives, topicals, and pet products were treated differently from many edibles, vapes, and flower. Beverages under specified THC limits survived. Liquor licensees and package-goods stores had a path to keep selling certain products. Licensed cannabis dispensaries, already protected by one of the most politically managed markets in Illinois, would have benefited from the squeeze on hemp competitors. Small hemp retailers would have been the obvious losers.
That is why Johnson’s veto was more than a defense of hemp shops. It was an argument against prohibition masquerading as regulation. The mayor said the ordinance was premature, warned it would push sales into a black market, and argued that it would favor dispensaries and some liquor-linked businesses while harming smaller operators. He did not deny the need for child-safety rules. He argued that banning an entire retail channel would drive the market underground and outside the reach of inspection.
The override vote then failed. Aldermen who had supported the ban could not muster the two-thirds (34 votes) needed to overturn the mayoral veto. The result was unsatisfying if one wanted a decisive answer. But the failure of both camps created a useful pause.
That pause matters because sin taxes are always a double-edged sword. Chicago likes vice revenue because it lets politicians claim they are taxing bad behavior rather than ordinary life. But vice taxes do not repeal human appetite. They redirect it. Push the rate too high and the city grows the black market. Ban too broadly and sales migrate online, to suburbs, to informal delivery, or to sellers with nothing to lose. Regulate too lightly and the city becomes a partner in unsafe commerce. Regulate too heavily and the city hands the market to incumbents with lawyers, lobbyists, and licenses.
The hemp fight sits squarely inside that dilemma. Chicago’s liquor tax is meaningful but modest, projected in the tens of millions of dollars. Cigarette revenue has been declining for years as smoking falls and high taxes encourage avoidance. Cannabis brings money, but the city’s own three percent layer is small compared with state cannabis revenue and the broader sales-tax stack. The real monster is the amusement tax, a flexible category that has expanded with the digital economy and now reaches into online entertainment and wagering. Against that backdrop, a $10 million hemp tax was not a fiscal solution. It was a temptation.
The Council’s ban was not a fiscal solution either. Fines are not a budget strategy. In Chicago neither is additional tax revenue. Spending reduction is the only proper budget solution. A ban would likely have cleaned up some visible shelves, especially in licensed stores with addresses, leases, and city permits. But it would not have eliminated demand. It would have created winners and losers. Dispensaries would gain. Some liquor sellers might gain through beverage carveouts. Small hemp shops would lose. Consumers would adapt.
The stalemate was beneficial because it prevented Chicago from making either mistake too quickly. The mayor did not get to slap a tax on a loosely regulated intoxicant and call it policy. The Council did not get to shut down a messy retail market in a way that would have protected some politically favored sellers while driving other sales underground. Both sides were forced to live with the limits of their own logic.
There is also a federal and state reason restraint was wise. Hemp law is changing rapidly. Federal rules are moving toward closing the intoxicating-hemp loophole. Illinois has now enacted its own restrictions, including age limits, packaging rules, and tighter regulation of hemp-derived products. That means Chicago’s local fight was never occurring in isolation. A city ordinance rushed through in January could have been overtaken by state and federal law before it was fully enforced.
The better policy is not hard to describe, though it is harder to administer. Chicago should not allow intoxicating products to be marketed to children, sold without age verification, mislabeled, or offered in packaging designed to mimic candy and snacks. It should require lab testing, QR-coded certificates of analysis, child-resistant packaging, dosage caps, retailer licensing, and swift penalties for selling to minors. It should distinguish between intoxicating products and ordinary CBD. It should tax the market only after it has made the market inspectable. In other words, make it similar to buying beer.
That approach would disappoint both sides. The tax collectors would get less immediate revenue than they hoped for. The prohibitionists would get less moral satisfaction than they wanted. If a reduction in THC consumption is the desired goal then moral suasion is the best strategy. It certainly worked in regards to cigarette smoking and drunk driving. As far as the tax collectors are concerned, there is no need to feed their addictive behavior.
Chicago’s hemp standoff was ugly, but useful. It revealed the mayor’s insatiable appetite for small-dollar revenue. It revealed the Council’s habit of reaching for bans. It exposed the advantage enjoyed by licensed cannabis dispensaries and other politically protected channels. And it reminded taxpayers that vice taxes are not free money. There is an admission that the government depends, at least in part, on the habits it publicly deplores.
