Elijah Nouvelage / Reuters
California's tax on cannabis generated only $ 74.2 million in the second quarter of 2019, the state said, announcing figures shorter than the estimates set months ago. It is the latest sign that the country's largest marijuana market has struggled to take off since the sale of recreation kits became legal last year.
The second-quarter figure reflected a gain over $ 63.1 million in tax revenue from the first three months of 2019. But earlier this year, Govin Newsom's results prompted the Office's estimates of how much the state would net from its cannabis industry.
"In January, Prime Minister Gavin Newsom's budget proposal expected $ 355 million and $ 514 million in tax revenue for the 2019 and 2020 fiscal years, respectively," as the member state capital Public Radio reported.
In May, Newsom's budget lowered cannabis tax expectations, to $ 288 million in the current fiscal year and to $ 359 million in 2020.
Compared to other states, California's legal cannabis market has stumbled rather than risen. When California moved from a loosely regulated medical marijuana system to a fully regulated retail system in 2018, legal sales dropped to $ 2.5 billion, from around $ 3 billion the year before.
"After adjusting for the population, Golden State increased the second-lowest income from cannabis taxes during the second quarter among states with legal sales, ahead of only Massachusetts," according to the Institute on Taxation and Economic Policy.
The result was a departure from the spikes seen in states such as Colorado, Washington and Oregon after these states legalized recreational markets.
"What had happened was that these markets typically doubled in the first year," says Tom Adams, of the cannabis industry research firm BDS Analytics. In the three states, he adds, they have "posted 50 to 90 percent compound annual growth for three consecutive years."
As to what is holding California back, Adams says that licensed stores can be hard to find because many local areas have refused to allow retailers to open. And then there are the tax and regulatory costs: In addition to requiring wholesale distribution, California imposes a number of taxes on the cannabis industry.
"There is usually 9% to 11% of retail sales tax" in California, Adams said. But local city and county municipalities can impose their own taxes on cannabis products, and these prices vary widely.
California also imposes a 15% tax, along with a $ 9.25 cultivation fee that growers must pay for each ounce of dried cannabis flowers.
The decision to levy a fixed tax based on weight rather than a fluctuating market price, Adams says that if "instead of going with a percentage of the income tax, you go with a tax per ounce, it will be very painful fast. "
Faced with high taxes in the legal market and new requirements to obtain an annual medical marijuana card, many California cannabis users have turned to the illegal market. The number of drug customers has fallen sharply over the past year, Adams notes. And he says that the state's rules for keeping inventories separate for recreational and medical sales have either increased costs or caused some retailers to leave the medical market entirely.
In addition to the state's income tax, California's cultivation tax was $ 22.6 million and its state sales tax was $ 47.4 million, for a total cannabis revenue increase of $ 144.2 million for the second quarter, the California Department of Tax reported and Fee Administration this week. State figures do not include taxes collected at the local level.
Despite market challenges, BDS Analytics released a report earlier this month that predicts California's legal cannabis sales will grow by 23% in 2019 to $ 3.1 billion, rising to $ 7.2 billion in 2024. But The company also believes that even five years from now, the illegal market will still make up 53% of all cannabis sales in California.
In contrast, the company says, "states with more supportive regulatory systems expect illegal sales to amount to less than 30%" of all sales.