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California’s cannabis tax revenue estimates have been reduced

Officials have since acknowledged a disappointing start for the licensing of new cannabis businesses in the state.

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California’s cannabis tax revenue estimates have been reduced

Bethan Rose Jenkins, Cannabis News Writer/Editorial

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A recent press release from the California Department of Tax and Fee Administration shows a disappointing first quarter for the state’s cannabis industry. Tax revenue reached just $60.9 million in the first quarter of 2018, inclusive of cultivation tax revenue and excise tax revenue.

Legal cannabis in California started on January 1, 2018.

Cultivation tax revenue was comprised of $9.25-per-ounce tax on dried flower and $2.75-per-ounce tax on leaves. It totaled $1.6 million. Excise tax revenue included a 15 percent tax on product retail price. It totaled $32 million.

The remaining $27.3 million was accrued from State and local sales tax.

After the data was released to the general public, California’s independent Legislative Analyst’s Office (LAO) reduced its predictions for excise-tax collection for the state’s first fiscal year of cannabis operations (2018-2019). The fiscal year officially starts on July 1, 2018.

Previously, the LAO’s forecasted tax revenue from July 1, 2018, to June 30, 2019, was estimated at $643 million. This has since been lowered by $13 million to $630 million.

California cannabis legalization was expected to amplify tax revenue the legalization of recreational cannabis sales in California back in January of this year, a major swell in tax revenue was expected.

However, predictions have failed to materialize, with many people believing excessive tax rates to be the cause.

A revised state budget was recently released by Governor Jerry Brown.

The new budget outlines the state’s economic recovery, which is forecast to accrue an $8.8 billion excess. This surpasses predictions made earlier in the year.


Despite this, things don’t seem to look so good for The Golden State’s new recreational cannabis industry.

During a press conference, the director of the California Department of Finance, Michael Cohen, admitted that revenues were not as high as previously anticipated. Nevertheless, Cohen remains hopeful.

“We are expecting that to turn over time and ramp up as more people get licensed and as more people get into the system,” he said.

California’s cannabis tax revenue estimates fall short

Legalisation done poorly may have hurt California’s tax revenue.

In January, Gov. Jerry Brown released a budget proposal, which anticipated excise and cultivation taxes would hit $175 million during the first six months of California’s adult-use cannabis market being inaugurated.

Officials have since acknowledged a disappointing start for the licensing of new cannabis businesses in the state.

Under Proposition 64, California’s black market and poorly regulated medical cannabis market were presumed to be transformed into the nation’s largest legal industry, valued at billions of dollars.

Things kicked off well on January 1, when legal recreational cannabis sales in California took effect.

Unfortunately, city and county officials throughout the state have since been arguing about licensing protocols for local cultivation and retail. Matters relating to restrictions on the number of growers and outlets has also been brought up in discussions.

“I’m not surprised at all,” said California Growers Association’s executive director, Hezekiah Allen. The pro-cannabis group supports over 1,000 cannabis business owners, patients, and farmers throughout California.

“Legalization done poorly has actually hurt the regulated market in California,” Allen added.

Why are California’s taxes on legal cannabis sales so disappointing? starters, regulators in California haven’t exactly been quick off the mark in issuing cannabis retail licenses.

Spokesperson for the Bureau of Cannabis Control (BCC), Alex Traverso, said that a mere 400 stores are now licensed during an interview with CNBC.

With a population of 39 million and an economy that rivals most, this is a considerably small number. When more licenses are issued, sales and tax revenue will increase.

The black market has not yet been dismantled either, which is another contributing factor for California’s disappointing cannabis tax revenue.

Many unlicensed cannabis stores have ignored warnings from the BCC to close up shop.

Until these problems are addressed, investors may want to keep their distance from California’s legal cannabis market.

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California’s cannabis tax revenue estimates have been reduced