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California Has Raised $1 Billion in Cannabis Tax

Mar 13, 2020

California Has Raised $1 Billion in Cannabis Tax

California has banked more than 1 billion US dollars in tax since it legalized recreational marijuana sales at the start of 2018, according to the state’s Department of Tax and Fee Administration.

In the two years since legalizing recreational use, $1.03 billion has been raised from the state’s cannabis excise, cultivation, and business taxes.

California’s record revenue has reportedly been spent on several civic programs, including child care for low income families, public safety grants, and cannabis research. Yet legal cannabis businesses are still concerned that the high tax rate pushes up their products’ prices, which benefits the more affordable illicit market.

New highs

As of February 18, 2020, California's cannabis excise tax generated $84.4 million in revenue from the 4th quarter of 2019, while cultivation tax generated $23.6 million, and sales tax from cannabis businesses netted $64.7 million.

Totaling $172.7 million, the 4th quarter’s tax revenue was just enough to push the state’s combined cannabis tax sum past one billion US dollars. This $1.03 billion figure roughly comprises of $498.1 million in cannabis excise tax, $123.4 million in cultivation tax, and $403.1 million in sales tax, collected over two years.

Although high, these numbers still fall short of the market’s initial predictions; in 2016, the independent Legislative Analyst’s Office predicted that California’s tax revenues could earn more than $1 billion each year.

So, what went wrong?

Old lows

“The legal industry is still suffering at the hands of a booming illegal market,” Dr Swetha Kaul, vice president of the board Of directors at the California Cannabis Industry Association, recently told Analytical Cannabis.

Along with high tax rates, which jumped up again on January 1 this year, Californian cannabis businesses have been struggling against hesitant, state-level authorities; as of May last year, 76 percent of California municipalities and 69 percent of counties had banned cannabis retailers in their jurisdictions.

Partly due to these retail restrictions, it’s estimated that $8.7 billion of the total $12 billion made in California cannabis sales went to the illegal market in 2019.

In response to the illicit threat, the state’s Bureau of Cannabis Control (BCC) and Department of Consumer Affairs' Cannabis Enforcement Unit carried out several enforced raids on unlicensed retailers. During one recent raid, over $660,000 of cannabis products and vape cartridges were seized.

“Illegal dispensaries harm and burden surrounding business owners and taxpayers,” said the mayor of Costa Mesa, Katrina Foley, in a statement following a raid last March.

“Allowing them to illegally operate in the city creates an unfair advantage over our lawfully permitted green zone businesses. We are so grateful for the efforts of the Bureau [of Cannabis Control] to address illegal dispensaries in Costa Mesa.”

In another effort to undermine the illicit market, the BCC recently announced that cannabis businesses in California will soon be required to post a unique Quick Response (QR) code in their storefront windows and transport vehicles.


Leo Bear-McGuinness

Science Writer

@LeoMcBear

Leo joined Analytical Cannabis in 2019. From research to regulations and analysis to agriculture, his writing covers all the need-to-know news for the cannabis industry. He holds a bachelor's degree in biology from Newcastle University and a master's degree in science communication from the University of Edinburgh.

 

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