Cannabis, the most widely used illicit drug, can induce hallucinations. Our understanding of the biology of cannabis-induced hallucinations (Ca-HL) is limited. We used the Semi-Structured Assessment for Drug Dependence and Alcoholism (SSADDA) to identify cannabis-induced hallucinations (Ca-HL) among long-term cannabis users (used cannabis ≥1 year and ≥100 times). A genome-wide association study (GWAS) was conducted by analyzing European Americans (EAs) and African Americans (AAs) in Yale-Penn 1 and 2 cohorts individually, then meta-analyzing the two cohorts within population. In the meta-analysis of Yale-Penn EAs (n = 1917), one genome-wide significant (GWS) signal emerged at the CHRM3 locus, represented by rs115455482 (P = 1.66 × 10−10), rs74722579 (P = 2.81 × 10−9), and rs1938228 (P = 1.57 × 10−8); signals were GWS in Yale-Penn 1 EAs (n = 1092) and nominally significant in Yale-Penn 2 EAs (n = 825). Two SNPs, rs115455482 and rs74722579, were available from the Collaborative Study on the Genetics of Alcoholism data (COGA; 3630 long-term cannabis users). The signals did not replicate, but when meta-analyzing Yale-Penn and COGA EAs, the two SNPs’ association signals were increased (meta-P-values 1.32 × 10−10 and 2.60 × 10−9, respectively; n = 4291). There were no significant findings in AAs, but in the AA meta-analysis (n = 3624), nominal significance was seen for rs74722579. The rs115455482*T risk allele was associated with lower CHRM3 expression in the thalamus. CHRM3 was co-expressed with three psychosis risk genes (GABAG2, CHRNA4, and HRH3) in the thalamus and other human brain tissues and mouse GABAergic neurons. This work provides strong evidence for the association of CHRM3 with Ca-HL and provides insight into the potential involvement of thalamus for this trait.