California’s low marijuana tax stream complicating MJ business climate

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A lower-than-expected first quarter of marijuana excise tax income in California has thrown a wrench into the works for those hoping state lawmakers might drop tax rates to help combat the black market.

Between January and the end of March, California took in only $34 million in excise tax revenue from cannabis sales.

That falls far short of a projection based on an estimate by Gov. Jerry Brown’s office that California would take in $175 million from the MJ excise tax for the 2017-18 budget year, which ends June 30.

The tax shortfall has already put a damper on the likelihood the state legislature will cut the excise tax from 15% to 11%, according to the Los Angeles Times.

The situation is perplexing for state lawmakers:

  • If they retain the existing tax rate, it will likely encourage thousands of existing black-market cannabis companies to keep doing business the way they have, without paying taxes or fees and undercutting their legal competition on price.
  • If they lower the excise rate, it’s not necessarily a guarantee more customers will enter the legal market or that state tax revenue will increase. However, a lower excise rate would make it easier for fully licensed businesses to compete with illegal retailers and could, therefore, actually increase state tax revenue and put it in line with the January projection.