California Cannabis Tax Revenues Pass $1 Billion

Cannabis-derived California tax revenues have reached $1 billion in just over two years since the launch of recreational sales, the Orange County Register reports. Most of the funds have been used to cover cannabis industry regulatory costs and those associated with the cleanup of public lands harmed by illegal grows, cannabis research, and childcare for low-income families.

Growth, however, has been lower than expected in the nation’s largest cannabis market; slowing in the fourth quarter to 1.5 percent down from 15.5 percent in previous quarters, according to Department of Tax and Fee Administration figures outlined by the Register. The first three months of legalized sales in the state brought in $72.6 million in tax revenues to the state, while the last three months of 2019 brought $172.7 million. California officials had expected to raise $1 billion a year from cannabis industry-derived taxes.

According to the report, 75 percent of cannabis sales in the state still happen illegally as prices at licensed dispensaries are 30 percent to 80 percent higher than prices in the illicit market. California’s tax structure includes a 15 percent excise tax, regular state sales taxes, a cultivation tax by weight, and municipal taxes which can be as high as 20 percent. On January 1, officials actually raised wholesale taxes on flower, leaf, and plants. Regulators said those tax hikes were in line with inflation.

Last October, Gov. Gavin Newsom (D) signed a bill that would override section 280E of the Internal Revenue Service Code allowing state-approved cannabusinesses to take normal business deductions. Lawmakers have introduced bills to eliminate the cultivation tax and temporarily lower the excise tax; however, similar bills have previously failed in previous sessions.