California’s marijuana tax revenue falls short of expectations

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The Golden State took much less than it anticipated from recreational sales last year

In November 2016, Californians overwhelmingly showed their support for Prop 64, which legalized recreational marijuana in the state. One of the benefits seen at the time was a huge increase in tax revenue generation, with some analysts estimating that as much as $1 billion in tax revenue could be achieved. The first year, things were off to a good start, but that success hasn’t been repeated and many are now wondering where things are headed.

Last week, the California Department of Tax and Fee Administration reported tax revenue of just $345.2 million for the first full year of recreational marijuana sales – just over half of what had been expected. The picture isn’t becoming any brighter, either, as The Golden State only took in 2.5% in the fourth quarter of what it received in the third quarter. That downward trend is not what the industry hoped to see.

One of the issues is with the high taxes paid in the marijuana industry in California. There is a 15% excise tax on all cannabis and cannabis products, a local tax that averages around 8% and a wholesale tax of $9.25 for every ounce of flower and $2.75 for every ounce of leaf. In the end, this means that the consumer can pay a 45% premium when making a purchase.

Couple this with the long wait times to receive a license and you have a recipe for success – for the black market. The marijuana black market is able to thrive because California went a little overboard in creating its marijuana framework.

The state could try to correct its errors, but many wonder if it’s going to be too late. Millions of dollars in revenue for California has already been lost and there’s no getting it back. If the state wants to really support its coffers, it’s going to have to move quickly to reverse the damage it has already caused.