HB 703 - SB 921
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
March 20, 2025
Fiscal Analyst: Elizabeth Bransford | Email: elizabeth.bransford@capitol.tn.gov | Phone: 615-741-2564
HB 703 - SB 921
SUMMARY OF BILL: Enacts the Pot for Potholes Act. Authorizes the possession and
transport of marijuana or marijuana concentrate, in permitted amounts, for adults who are at least 21
years of age (adults). Authorizes transfer of marijuana or marijuana concentrate between adults, in
permitted amounts, without remuneration. Authorizes the cultivation of up to 12 marijuana plants
and the possession, storage, and processing of marijuana in permitted amounts on the premises of
an adult’s residence. Authorizes a parent, guardian, or conservator to administer a marijuana
product, excluding any combustible product, to a minor with a medical condition, over whom the
parent, guardian, or conservator has legal authority.
Requires the Department of Health (DOH) to provide on the Department’s website a form that,
upon execution by a parent, guardian, or conservator, after consultation with a healthcare
practitioner, creates a rebuttable presumption that the minor has a medical condition for which the
use of marijuana is treatment for any such condition.
Establishes various areas, premises, and instances in which possession or consumption of marijuana
or marijuana products are prohibited.
Establishes various offenses against possession, consumption, or processing of marijuana, or selling,
giving, or causing marijuana to be sold or given to a minor, or selling marijuana from unauthorized
establishments. Establishes that a first, second, or third offense is a Class C misdemeanor, and a
fourth or subsequent offense is a Class A misdemeanor. Any Class A misdemeanor offense by a
licensee is punishable by a revocation of licensure for a period of two years.
Authorizes the conduction of retail marijuana operations. Establishes licenses for growers,
processors, dispensaries, transporters, testing facilities, and research facilities. Establishes
requirements for applicants to such licenses and for approved licensees.
Requires the Department of Agriculture (DOA) to implement and administer the conduction of
retail marijuana operations, including the regulation of marijuana establishments and marijuana
research facilities. Regulation must include establishing application and license fees sufficient to
implement this Act, which may be adjusted annually for inflation.
Requires DOA, in conjunction with DOH to promulgate rules regarding the involvement of the
state in sanctioning research projects or licensing marijuana research facilities, including a process by
which marijuana research facilities may request and receive public money for research projects.
Authorizes DOH to promulgate rules and forms necessary to facilitate a medical use component.
Requires DOA to annually provide a report to the Governor and Chief Clerks of the Senate and the
House of Representatives regarding the licensing and regulation under this Act.
HB 703 - SB 921 2
Establishes that the sale of marijuana and marijuana products are subject to the state and local sales
and use tax, as well as an additional 15 percent marijuana tax. Authorizes local governments to
impose a local sales tax on such sales, not to exceed five percent of the price of the products sold, of
which proceeds shall be distributed the same as existing local sales and use tax.
The proceeds of the 15 percent marijuana tax shall be allocated as follows:
• 75 percent to the Highway Fund;
• 20 percent to counties;
• 5 percent to the Department of Revenue (DOR) for administrative costs incurred pursuant
to this Act, including collection and enforcement costs.
Establishes a sales and use tax refund equal to 25 percent of the sales and use tax levied on supplies
and materials purchased from Tennessee businesses by marijuana growers, processors, and
dispensaries for use in their respective businesses. To receive a refund, a marijuana establishment is
required to submit a form prescribed by DOR, in addition to any documentation DOR may require.
Prohibits a political subdivision of the state from enacting, adopting, or enforcing a rule, ordinance,
order, resolution, or other regulation which prohibits or unreasonably restricts the cultivation,
production, manufacture, dispensing, transportation, or possession of marijuana or marijuana
products or the operation of a licensed grower, processor, dispensary, transporter, research facility,
or testing facility.
Authorizes a political subdivision of this state to adopt regulations governing the hours, operation,
location, manner of conducting business, and number of marijuana dispensaries; provided, such
regulations are prohibited from being more restrictive than those that apply to liquor stores.
Authorizes a county or municipality to ban the sale or the cultivation or manufacture of marijuana
or marijuana products by marijuana establishments within its jurisdiction upon a two-thirds vote of
the respective legislative body; however, the initial vote on a local ban must occur no later than
September 30, 2025. Any such ban expires one year from the ban’s effective date and must be
renewed by another two-thirds vote. Stipulates that any county or municipality that bans the sale,
cultivation, or manufacture of marijuana or marijuana products within its jurisdiction is disqualified
from receiving any grant funds authorized by this Act while such ban is in effect.
Establishes that a person’s bail, parole, probation, or suspended sentence shall not be revoked based
solely on a positive confirmatory urine drug test conducted via a gas chromatography mass spectrum
test (drug test) for delta-9 tetrahydrocannabinol (THC).
Prohibits any person from being required to receive a referral to a treatment resource or being
prohibited from receiving public assistance based solely on a positive confirmatory drug test. Public
assistance includes, but is not limited to, assistance from the Special Supplemental Food Program
for Women, Infants, and Children (WIC), Temporary Assistance for Needy Families (TANF),
TennCare, the Supplemental Nutrition Assistance Program (SNAP), and other public assistance or
welfare programs.
Requires the Department of Correction (DOC) to review the records of persons who are
incarcerated in this state for the cultivation, manufacture, delivery, sale, possession, or transfer of
HB 703 - SB 921 3
marijuana under Tenn. Code Ann. §§ 39-17-417 or 39-17-418. The department shall identify and list
persons incarcerated for such offenses and include information as to whether the person was also
convicted of a felony offense involving violence or the use of a firearm or a felony drug offense for
a controlled substance other than marijuana. The department shall provide the list to the Governor
and the Speakers of the House of Representatives and the Senate by December 31, 2025.
Effective, for the purposes of promulgating rules and forms and for DOC to review records,
identify, and list persons incarcerated, upon becoming a law. Effective, for all other purposes,
January 1, 2026.
FISCAL IMPACT:
STATE GOVERNMENT
REVENUE General Fund
Highway
Fund
Secretary of
State
Department
of Revenue
FY26-27
NET
$17,477,200
$14,670,300
$600
$978,000
FY27-28
NET
$35,077,300
$29,340,500
$600
$1,956,000
FY28-29
NET
$35,117,300
$29,340,500
$600
$1,956,000
FY29-30 & Subsequent Years
NET
$35,192,700 $29,340,500 $200
$1,956,000
EXPENDITURES Incarceration Department of Revenue
FY25-26 ($104,900) -
FY26-27 ($212,200) $167,400
FY27-28 & Subsequent Years ($214,800) $156,700
Total Positions Required: 2
LOCAL GOVERNMENT
REVENUE Permissive Mandatory
FY26-27 $6,520,100 NET $7,419,700
FY27-28 each through FY28-29 $13,040,200 NET $14,922,000
FY29-30 & Subsequent Years $13,040,200 NET $14,977,100
EXPENDITURES Mandatory
FY25-26 ($1,743,300)
FY26-27 & Subsequent Years ($3,486,600)
HB 703 - SB 921 4
OTHER FISCAL IMPACT
Any increase in state or local expenditures relative to funding directed to state-sanctioned research
projects cannot be reasonably quantified.
Decreases in incarceration expenditures will continue through FY34-35. Precise amounts of annual
decreases are included below. Additionally, this legislation could result in further reduced expenditures
for incarceration at the state and local level, and increased expenditures at the state and local level for
additional public benefits; however, due to multiple unknown variables, any such impacts cannot be
reasonably quantified or determined at this time.
Assumptions:
(A) Tax Revenue
• Pursuant to Tenn. Code Ann. § 67-6-232(a), there is an additional 6.0 percent sales and use
tax on the retail sale of products containing a hemp-derived cannabinoid.
• Total such collections were $12,574,076 in FY23-24.
• Fiscal Review Committee staff’s current estimates for total sales tax collections growth rates
are 4.81 percent in FY24-25 and 3.25 in FY25-26.
• Total collections are estimated to be $13,607,203 ($12,574,076 x 1.04821 x 1.0325) in FY25-
26.
• Total taxable sales are estimated to be $226,786,717 ($12,574,076 / 6.0%).
• According to a 2022 study, states that have legalized the recreational use of marijuana
realized a 20 percent average increase in marijuana use.
• It is assumed the same cohort of individuals currently purchasing hemp products will
continue to purchase such products and begin purchasing regular marijuana.
• For the purposes of this analysis, it can be reasonably assumed that the proposed legislation
will result in a 15 percent increase in marijuana use in Tennessee.
• Therefore, total taxable sales of recreational marijuana are estimated to be $260,804,725
($202,974,112 x 1.15). For the purposes of this analysis, this number is assumed to remain
constant into perpetuity.
• Pursuant to Tenn. Code Ann. § 67-6-702(a), local governments are authorized to levy a tax
on the same privileges subject to the state sales tax rate.
• The current state sales tax rate is 7.0 percent; the average local option sales tax rate is
estimated to be 2.5 percent; the effective rate of apportionment to local government
pursuant to the state-shared allocation is estimated to be 3.617 percent.
• Additionally, the proposed legislation imposes a 15.0 percent state marijuana tax on such
sales and a local option tax not to exceed 5.0 percent.
• For the purposes of this analysis, it is assumed local governments will impose a 5.0 percent
local option tax on the sale of marijuana.
• The proposed legislation allocates the revenue generated from the state marijuana sales tax
as follows:
o 75 percent to the Highway Fund;
o 20 percent to the various counties; and
HB 703 - SB 921 5
o 5 percent to DOR.
• Pursuant to Tenn. Code Ann. §§ 67-4-2007(a) and 67-4-2103(a), the state excise tax rate is
6.5 percent of net earnings for the next preceding fiscal year and the franchise tax rate is
$0.25 per $100 of a taxpayer’s new worth at the close of the tax year.
• For the purposes of this analysis, it is assumed that companies within the industry pay taxes
for an average net profit of 15 percent. Net worth of such companies is estimated to be
equivalent to annual sales.
• It is assumed that marijuana sales will effectively begin on January 1, 2027; therefore, sales
of marijuana in FY26-27 are estimated to be equal to one-half of one year of estimated
sales.
FY26-27
FY27-28 and
Subsequent Years
Increase State Revenue General Fund
Sales Tax $8,798,000 $17,595,999
Franchise Tax $326,006 $652,012
Excise Tax $8,476,154 $16,952,307
Total $17,600,160 $35,200,318
Increase State Revenue - Other
Highway Fund $14,670,266 $29,340,532
Department of Revenue $978,018 $1,956,035
Increase Local Revenue Mandatory $7,502,296 $15,004,591
Increase Local Revenue Permissive $6,520,118 $13,040,236
(B) Licensing Revenue for Marijuana Establishments, Business Charters, and Tax Refunds
(i) Licensing Revenue
• Sales of marijuana will begin January 1, 2027.
• Marijuana establishments will include: growers, processors, dispensaries, transporters,
testing facilities, and research facilities.
• All such establishments will need to become licensed prior to January 1, 2027. It is assumed
that such establishments will become licensed in FY26-27.
• DOA is required to set application and licensing fees in amounts sufficient to administer
this new program.
• For the purposes of this analysis, it is assumed the amount of tax revenue received by DOA
for administration and enforcement plays a factor in the setting of fees, thereby such fees
will not need to solely cover all expenditures incurred by DOA in administering this Act. It
is assumed all application and licensing fee revenue will be deposited in the General Fund
and earmarked to DOA for administration and enforcement of this Act.
• It is assumed that marijuana establishments will pay a one-time nonrefundable application
fee of $100 and a licensing fee of $200. Each license is valid for two years.
• The increase in licensing revenue for marijuana establishment is estimated as follows:
HB 703 - SB 921 6
FY26-27 FY27-28 FY28-29 FY29-30 +
Licensing Revenue for Marijuana Establishments
Estimated existing marijuana establishments 0 200 400 550
Estimated new marijuana establishments 200 200 200 50
Total 200 400 600 600
Increase in State Revenue to General Fund $60,000 $60,000 $100,000 $55,000
• For the purposes of this analysis, it is assumed that the total number of licensed marijuana
establishments in FY29-30 will remain constant into perpetuity. It is further assumed that
approximately 50 existing locations will cease operations and 50 new marijuana
establishments will enter the market.
(ii) Business Charters
• All new marijuana establishments will be required to file a business charter with the
Secretary of State’s Office. It is estimated 200 marijuana establishments will file a business
charter in each FY26-27 through FY28-29, and 50 will file a business charter in FY29-30
and subsequent years.
• The business charter fee is one-time at $100.
• The charter fee revenue is allocated 97 percent to the General Fund, and 3.0 percent to the
Secretary of State’s Office.
• The increase in state revenue due to filing of marijuana establishment business charters is
estimated as follows:
FY26-27 FY27-28 FY28-29 FY29-30 +
Business Charters
Registration Revenue $20,000 $20,000 $20,000 $5,000
Increase in State Revenue to General Fund $19,400 $19,400 $19,400 $4,850
Increase in State Revenue to Secretary of State $600 $600 $600 $150
(iii) Tax Refunds
• The proposed legislation authorizes certain marijuana licensees to claim a refund of 25
percent of the sales and use tax levied on supplies and materials purchased from a business
located in this state and used for the cultivation, processing, production, dispensing, and
retail sale of marijuana.
• The amount of any such refund per business is unknown, but is reasonably assumed each
licensed grower, processor, or dispensary will make $20,000 in qualifying purchases.
• It is estimated that 150 marijuana establishments will receive a tax refund in each FY26-27
through FY28-29, and 50 will receive a tax refund in FY29-30 and subsequent years.
• The estimated decrease in state and local sales and use tax revenue is as follows:
HB 703 - SB 921 7
FY26-27 FY27-28 FY28-29 FY29-30 +
Sales and Use Tax Refunds
Decrease State Revenue to General Fund $202,404 $202,404 $202,404 $67,468
Decrease Local Revenue Mandatory $82,596 $82,596 $82,596 $27,532
(C) Expenditures
• Public Chapter 423 of 2023 established DOA’s regulatory authority over hemp in this state.
As a result, DOA received 16 additional positions. Therefore, DOA is sufficiently staffed to
implement the requirements of the proposed legislation.
• The proposed legislation requires DOA, in conjunction with DOH, to promulgate rules
regarding the involvement of the state in sanctioning research projects or licensing
marijuana research facilities, including a process by which marijuana research facilities may
request and receive public money for research projects.
• Any increase in state or local expenditures relative to funding directed to state-sanctioned
research projects cannot be reasonably quantified.
• DOR will require two additional Tax Auditor 2 positions to audit tax returns submitted by
qualifying establishments beginning in FY26-27.
• The total recurring increase in state expenditures is as follows:
Title Salary Benefits # Positions Total
Tax Auditor 2 $60,336 $18,038 2 $156,748
• There will be a one-time increase in state expenditures in FY26-27 of $10,700 for computer
expenses.
• The total increase in state expenditures in FY26-27 is $167,448 and in FY27-28 and
subsequent years is $156,748.
(D) Impact on Incarceration/State and Local Court Costs
• The proposed legislation will reduce convictions for simple possession involving an amount
of marijuana less than one-half ounce.
• Based on information provided by the Administrative Office of the Courts and the
Department of Correction Jail Summary Reports, there have been an average of 3,749.67
Class A misdemeanor convictions for simple possession and casual exchange and
distributing a small amount of marijuana not in excess on one half ounce under Tenn. Code
Ann. § 39-17-418 in each of the last five years.
• It is assumed that an individual convicted of a Class A misdemeanor offense will spend an
average of 15 days in a local jail.
• Based on cost estimates provided by local government entities throughout the state and
reported bed capacity within such facilities, the weighted average cost per day to house an
inmate in a local jail facility is $61.99.
• The proposed legislation will lead to a recurring mandatory decrease in local incarceration
expenditures estimated to be $3,486,631 [($61.99 x 3,749.67 admissions) x 15 days].
• This impact will take effect January 1, 2026; therefore, the first-year impact in FY25-26 will
be equal to one-half of one-year impact.
HB 703 - SB 921 8
• Therefore, the estimated recurring mandatory decrease in local incarceration expenditures is
estimated to be $1,743,316 ($3,486,631 x 50%) in FY25-26 and $3,486,631 in FY26-27 and
subsequent years.
• Pursuant to Tenn. Code Ann. § 39-17-417(g)(1), the sale, manufacture, delivery of, and
possession with intent to sell, manufacture, or deliver a Schedule VI controlled substance
classified as marijuana containing not less than one half ounce nor more than ten pounds,
or a Schedule VI controlled substance defined as a non-leafy, resinous material containing
tetrahydrocannabinol (hashish), containing not more than two pounds of hashish is a Class
E felony offense.
• Based on information provided by DOC, there has been an average of 114.20 admissions in
each of the last 10 years for the Class E felony offense under Tenn. Code Ann. § 39-17-
417(g).
• However, these admissions include a Schedule VI controlled substance classified as
marijuana containing up to ten pounds and a Schedule VI controlled substance classified as
hashish containing up to two pounds.
• It is assumed that 15 percent, or 17.13 (114.20 x 15%) of these admissions involved
between one half ounce and one ounce of a Schedule VI controlled substance classified as
marijuana.
• After adjusting for pre-trial jail credits, the average time served for a Class E felony offense
under 39- 17-417(g) is 0.56 years.
• Based on population data from the U.S. Census Bureau, population growth in Tennessee
averaged 1.24 percent per year (from 2021 to 2024).
• The proposed legislation will result in 17.13 admissions annually serving 0.56 less years
incarcerated.
• The weighted average operational costs per inmate per day are estimated to be $62.02 for
inmates housed at state facilities and $50.51 for inmates housed at local facilities.
• Pursuant to Public Chapter 1007 of 2022, cost decreases are to be estimated on the actual
estimated costs to be reduced over the next three-year period; therefore, the decrease in
incarceration costs is estimated to be the following over the next three-year period:
• Based on Fiscal Review Committee’s 2008 study and the Administrative Office of the
Courts’ 2012 study on the collection of court costs, fees, and fines, collections in criminal
cases is insignificant. The proposed legislation will not significantly impact state or local
revenue.
• The estimated fiscal impact of the proposed legislation does not consider the availability of
beds in state and local facilities, but is based solely on the current operating costs of state
facilities and the reimbursement rates for local facilities as is required by Tenn. Code Ann.
§ 9-4-210.
Decrease in State Expenditures
Amount Fiscal Year
($104,850)* FY25-26
($212,200) FY26-27
($214,800) FY27-28
*1/2-year impact
HB 703 - SB 921 9
(E) Other
• DOC can review and provide the list required by the legislation to the appropriate
recipients utilizing existing resources.
• This legislation could result in reduced state and local expenditures for incarceration, and
increase state and local expenditures for additional public benefits; however, due to multiple
unknown variables, any such impact cannot be reasonably determined at this time.
(F) Total Impacts
• The total fiscal impact as a result of the proposed legislation is as follows:
FY25-26 FY26-27 FY27-28 FY28-29 FY29-30 +
Increase in State Revenue
General Fund - $17,477,156 $35,077,314 $35,117,314 $35,192,700
Highway Fund - $14,670,266 $29,340,532 $29,340,532 $29,340,532
Secretary of State - $600 $600 $600 $150
Department of Revenue - $978,018 $1,956,035 $1,956,035 $1,956,035
Increase in State Expenditures
Department of Revenue - $167,448 $156,748 $156,748 $156,748
Decrease in State Expenditures
Incarceration ($104,850) ($212,200) ($214,800) ($214,800) ($214,800)
NET Increase in Local Revenue
Mandatory - $7,419,700 $14,921,995 $14,921,995 $14,977,059
Increase in Local Revenue Permissive - $6,520,118 $13,040,236 $13,040,236 $13,040,236
Decrease in Local Expenditures
Mandatory ($1,743,316) ($3,486,631) ($3,486,631) ($3,486,631) ($3,486,631)
• All calculations used in the completion of this fiscal analysis are available upon request.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director