California’s Q3 marijuana tax revenues signal ongoing MJ business turbulence

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The latest quarterly cannabis tax revenues reported by the state of California reveal that while the legal cannabis market is continuing to grow and stabilize, it’s also underperforming expectations – a trend that became obvious earlier this year.

Here are some insights into the reasons:

  • California’s legal marijuana businesses have struggled in the face of serious competition from the illicit market and a lack of local licensing opportunities for legacy MJ companies.
  • That combination has produced far less in legal sales and tax revenues than many in California had hoped.

According to the California Department of Tax and Fee Administration, the state brought in a total of $93.1 million in cannabis taxes in the third quarter of 2018, including $52.4 million in excise taxes, $12 million in cultivation taxes and $28.7 million in sales taxes.

Those numbers do not include city and county marijuana taxes.

That is a significant increase from the first two quarters of 2018. Q2 cannabis tax revenues were revised to $80.2 million, the CDTFA reported.

But the first six months of 2018 were a whopping $101 million below earlier forecasts, according to the Legislative Analyst’s Office (LAO).

After a disappointing start to the Golden State’s legal cannabis sales that brought in far less than state officials were projecting, Gov. Jerry Brown’s administration earlier this year dropped its MJ tax-haul forecast for the 2018-19 fiscal year to $630 million for cannabis excise taxes alone, CNBC reported in May.

Even by that diminished metric, the industry is nowhere near meeting that updated forecast, given that the excise tax rate of 15% brought in just $52.4 million in Q3.

“So far, cannabis tax revenue has grown at an average quarterly rate of 33%,” the LAO reported on its website earlier this month. “How long this rapid growth will continue is unclear.

“If revenue continued to grow at this rate through the end of the fiscal year, the 2018-19 total would be roughly $410 million. In a more modest growth scenario – 5% per quarter – 2018-19 revenue would be $280 million.”