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California Scales Back Cannabis Tax Revenue Estimates in Light of Covid-19

Jun 05, 2020

California Scales Back Cannabis Tax Revenue Estimates in Light of Covid-19

California Governor Gavin Newsom has downgraded the projections for the state’s legal cannabis tax revenue for this year and the next.

Speaking to the Los Angeles Times, Newsom explained that the economic impacts of Covid-19 will be severe for the legal cannabis industry, and businesses may close as a result.


Legal and fragile

Back in January, Newsom predicted that California’s cannabis excise tax would bring in $479 million in 2020 and $590 million in the fiscal year starting July 1. His revised budget now forecasts just $443 million for this year and $435 million for next year.

“While similar products like alcohol and tobacco tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the Covid-19 pandemic,” reads the budget, according to the Los Angeles Times.

“Cannabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the Covid-19 recession, and still must contend with competition from the black market.”

The illicit cannabis market is an ongoing obstacle in California. Partly due to a lack of retail outlets across the state,it’s estimated that $8.7 billion of the total $12 billion made in California cannabis sales in 2019 went to the illegal market.

“The biggest problem that we're experiencing California is the black market,” Aaron Riley, president of CannaSafe, a Los Angeles-based cannabis testing lab, told Analytical Cannabis in April. 

“The illicit market is five times as big and they typically do better even during times like this. I would imagine that their sales were up a lot higher than the legal dispensary chains.”

Legal dispensaries did see a spike in sales in mid-March as consumers stockpiled for the weeks ahead. But sales declined in the weeks that followed, and have only recently resumed normal patterns, according to the cannabis market research firm BDSA.

To help out struggling legal dispensaries, Californian cannabis authorities have allowed cannabis businesses to request a 60-day deferral to their license fee payments if they require it.

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

 

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