In only two short years since adult-use cannabis was legalized in the state, taxes from sales in California have officially reached $1 billion, according to a report from the Orange County Register. According to the report, the tax funds have been allocated to help fund regulatory expenses, clean up public lands that were harmed due to illegal grows, and help pay for childcare for low-income families.
Despite the fact that the tax revenues are sky-high, the nation’s largest legal cannabis market has had slower growth than expected, according to figures from the Department of Tax and Fee Administration. The first three months that adult-use cannabis was legal, California brought in $72.6 million in taxes. Prior to that, $172.7 million were brought in within the previous three months, dating back to December 2019. However, the $1 billion in two years is lower than what was expected, as California officials were expecting to bring in a billion each and every year since cannabis was legalized.
“Somewhere along the supply chain, we need to lower the cost of doing business,” said Jerred Kiloh, board president for the United Cannabis Business Association trade group.
One of the biggest reasons why tax revenues are lower than expected is because there is still a thriving illicit market for cannabis in California. The Orange County Register reports that around 75 percent of all cannabis transactions are still being done illegally. Depending on the area, dispensaries and retail locations will charge between 30 to 80 percent more for legal cannabis compared to the illicit market.
Legal cannabis costs more because of the large tax burden in California, which is among the highest in the U.S. While this brings in tax revenue, it also can discourage customers from patronizing local businesses. In California, there is a 15 percent excise tax, in addition to the normal state sales taxes. There’s also a cultivation tax by weight, as well as municipal taxes, which can be as high as 20 percent. On top of all of this, wholesale taxes were raised recently as well. Taxes on flower were raised from $9.25 to $9.65, leaf taxes per dry-weight ounce went from $2.75 to $2.87, and plant rates increased from $1.29 to $1.35.
With some of the highest taxes on cannabis in the nation, it’s no surprise that California is both raking in tax revenue and that cannabis businesses are losing sales to the illicit market. Something will have to give if changes are to be made, and only time will tell what those changes might be.