California Legal Marijuana Sales Fall Short Due to Taxes

Taron McElroy
The Associated Press
Newport Beach, CA

California’s projected tax collection bonanza from recreational marijuana missed the state’s projections by 13 percent in the first two months of 2018 due to taxes.

The Sacramento Bee reported that estimated Proposition 64 recreational marijuana sales from California licensed retail dispensaries and delivery services for the months of January and February averaged $169.5 million per month, or about 13 percent below prior projections, according to BDS Analytics.

Despite the apparent revenue shortfall, the State of California has not made any adjustment to its sales forecast that monthly revenue will average $192.5 million for the first six months of 2018.

The first 88 California recreational marijuana dealers licensed under California’s Bureau of Cannabis Control (BCC) made big price-cuts to generate large sales volumes beginning on Jan 1. BCC told Breitbart that the number of legal dealers has since grown to 317.

BCC projected that a legal cannabis industry would grow at about the same 28 percent compounded rate as the roll-out of Internet broadband access in the 1990s. The BCC projected California legal pot revenue of $7 billion and private sector employment of 100,000 in 2018, spiking to $20.2 billion and 150,000 by 2021. State and local marijuana tax revenue collection was forecast to spike from $1 billion in 2018 to $3 billion by 2021.

But despite the initial fanfare, annual revenue for legal marijuana sales is trending at slightly over $2 billion, which means that tax collection is trending at about $291 million.

California’s non-partisan Legislative Analyst’s Office warned in its Jan 2017 overview called the “Amount of Revenue Highly Uncertain” for Proposition 64 due to the size of the market for legal cannabis, amount of tax charged, and the prices paid by consumers.

According to the Marijuana Rates blog, the average price for legal recreational marijuana in California is around $16 a gram or $262 an ounce. That is up from an average per gram of just $13 per gram of medical marijuana at about this time last year. The main reason prices are up by 23 percent is the 15 percent state excise and local government taxes on recreational marijuana.

Breitbart California reported in February: “California marijuana farmers that obtained legal cultivation licenses under Proposition 64 are already complaining to the Humboldt County Supervisors that taxes could bankrupt them.”

Besides Proposition 64’s excise tax on sales, the State of California is charging growers a cultivation tax of $9.25 per ounce for flowers and $2.75 per ounce for leaves. California’s legal sellers and cultivators of recreational marijuana are also now required to pay the U.S. Internal Revenue Service a steep 35 percent federal income tax rate.

The Bee reported that over 6,000 Internet delivery services and dispensaries in California listed on the Weedmaps website, versus 580 state licensed dispensary and delivery companies. The BCC in February noticed Weedmaps that they must stop advertising unlicensed marijuana businesses and sent demand letters to 1,000 marijuana sellers ordering them to get licenses or stop selling. Weedmaps told the state that it has no authority to regulate a technology company.

California Cannabis Industry Association President Kristi Knoblich, told the Bee, “Sales are happening but they’re not happening in the regulated market.”

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