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California Made $300 Million on Legal Cannabis in 2018, and It’s Just Getting Started

February 19, 2019

The world’s biggest, most influential cannabis market generated around $300 million in taxes in its first year of commercial legalization. And it did it with both hands—and one foot—tied behind its back.

Today, the California Department of Tax and Fee Administration released its final tally for cannabis sales and excise tax receipts for 2018. California collected about $300 million in cannabis sales taxes and fees for the first year of commercial sales. Thats lower than initial projections for 2018—which was the first year of legal sales. But the amount is far greater than totals from any other state that also legalized cannabis the year California did, in 2016.

Three years ago, California, Nevada, Massachusetts, and Maine voters all ended cannabis prohibition at the ballot box—calling for taxing and licensing the robust state trades.

Commercial sales got started first in July 2017 in Nevada, followed by January 2018 for California, and fall 2018 for Massachusetts. Maine’s former Gov. Paul LePage blocked implementation, so the state collected zero tax dollars on its cannabis trade.

Massachusetts may collect $60 million in its first year, which is ongoing. Nevada collected $69.8 million in its first year. Those are tiny fractions of Californias tax total, because the state is so much bigger.

Strong Year One Growth

California has multiple levels of taxes on cannabis:

  • A 15% state excise tax
  • A cultivation tax of $9.75 per ounce
  • A state sales tax base rate of 8.75%
  • Plus local sales and excise taxes, which are hard to track across more than 500 cities and counties

You can see the legal cannabis industry gaining strength in the most recent numbers, which cover the fourth quarter of 2018.

  • Total collections were up more than 10% from the third quarter
  • Cultivation taxes surged more than 30% to $16.4 million in the fourth quarter
  • Sales taxes hit a new high mark of $36.1 million for the fourth quarter
  • Only excise taxes dipped a bit, to $50.8 million in the fourth quarter, down from $52.4 million in the third quarter

In total, California’s roughly $300 million tax haul in year one of commercial sales is more than three times higher than the state ever collected on annual medical marijuana taxes over the last 23 years.


Managing Great Expectations

California budget-makers had initially hoped to collect $655 million in year one cannabis taxes, on the way to an estimated target goal of $1 billion in annual tax revenue. That year one estimate had to be revised down, because about 75% of cities and counties in the state banned cannabis commerce.

However, such bans are typical of early implementation. Colorado, Washington, and Oregon also had a majority of cities opt out of the jobs, salaries, and tax revenue of legalization. Over time, more and more ban cities and counties come around. California promises to follow the same route. Also missing from the tax picture are totals for local sales and excise taxes, which can run as high as 20%.

Industry Asking for Tax Cut

With year one done, cannabis tax collections are on pace to hit the target $1 billion mark within three years—lightning speed after more than 80 years of prohibition.

But many see the industry as underperforming due to current tax rates. Rep. Rob Bonta has introduced a bill to pause the cultivation tax, and lower the excise tax for a few years. The goal is to draw price conscious consumers into stores, and tax-sensitive growers into the regulated market. But Rep. Bonta’s bill needs a super-majority in both houses to amend Proposition 64, and become law. Last year, a cannabis tax cut bill died in committee. Lawmakers worried it would decrease tax revenue at a time when state officials are in the mood to raise more tax revenue, not less.

What’s $300 Million Worth?

California has an annual proposed budget of $209 billion, so cannabis tax revenues neither make nor break local or state budgets. Most cannabis tax revenue is earmarked to pay for state cannabis regulators, followed by funds for police, public health, and social justice programs.

But for comparison, California’s first year of cannabis taxes could pay the average annual salaries of an extra 4,166  teachers—double the number employed in the Sacramento Unified School District.

California’s first year of cannabis taxes could pay the average annual salaries of 3,542 additional police officers—eight times the number of cops in the Sacramento Police Department.

David Downs's Bio Image
David Downs

David Downs directs news and lifestyle coverage as the California Bureau Chief for Leafly.com. He's written for WIRED, Rolling Stone and Billboard, and is the former cannabis editor of the San Francisco Chronicle, as well as the author of several cannabis books including 'Marijuana Harvest' by Ed Rosenthal and David Downs. He co-hosts The Hash podcast. TW: @davidrdowns | IG @daviddowns

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