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

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.”

12 comments on “California’s Q3 marijuana tax revenues signal ongoing MJ business turbulence
  1. Eric Geisterfer on

    Not much will change until the Bureau of Cannabis Control gets its act together. Unfortunately, Lori Ajax and the BCC “investigators” don’t understand the cannabis market. They currently have a position open for “Supervising Special Investigator II (Non-Peace Officer)”. When you read the requirements for the job, you’ll understand why the BCC is clueless. This is not a city by city issue, it’s a state wide issue. Even if one city has its act together, illegal shops will simply set up shop just outside that city’s boundary and still have an impact on the legal dispensaries inside that city.

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  2. Old Timer on

    Typical of California. Onerous licensing requirements and fees inhibit growth of new businesses and cause existing businesses to consider leaving.
    If they want more tax money, they will have to give out licenses. Licenses along the entire supply chain. What’s the point of allowing grows without enough retail outlets? Local control is a failure. In some of the the limited areas it seems to be working, corruption is rampant.
    Open up the market. Allow farmers to grow and sell crops.

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    • Pat on

      This will only occur when the state begins lending its ear to the 99.9% and not the historical criminal networks special interest’s. And with history as a back drop, this isn’t going to happen anytime soon. The black marketeers are increasingly looking more and more angelic in comparison… Robin Hooder’s. The state’s leadership has only itself to blame, entirely, for allowing it to get to this.

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    • Debra Bass on

      I agree. California state and especially localities are taxing cannabis to death. Add that to the fact that regulations are so onerous and nonsensical that there is little incentive to go legal except for fear of DEA gestapo tactics and local police assistance.

      Reply
  3. João Silverstein on

    Illegal operators are killing the businesses which are paying all of the taxes to the State and local tax authorities. Appeals for enforcement fall on deaf ears on both the State and Local levels. This really is a question of fairness. Illegal operators charge no taxes and who doesn’t want to save money? This situation must be addressed or there will be no legal businesses left paying taxes.

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    • Pat on

      Joao, it sounds like you tried to play by the rules according to this corrupt state law. And, you seem to be learning the hard way “it’s better to ask forgiveness than to ask for permission.” Esp around this hot potato. The state doesn’t give a damn about you or your sense of civic duty/fairness. They don’t categorize anyone in this business as being wholly legitimate. And with that frame of reference, you get this kind of a mess. A lot of the licensee’s become losers and everyone else ( inc those that were playing by the rules ) is either shut out; or they take their chances, and continue doing business the 215/420 way. Either way, all those people are at risk all over again at getting arrested,etc… Again, made to be losers by the state, when they weren’t just a year earlier. These are your best minds at work within the ca. state legislature…. My heart goes out to you, man.

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    • Riv on

      Many, now state unlicensed, operations that operated legally under prop 215 have been paying county taxes for years and now those same local county jurisdictions won’t give those operators permits, only the “chosen ones” get local permits. You can’t get a State license without a local permit

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  4. Kris Etemadi on

    California is a different market in many ways and the current chaos was something to be expected. However, things will eventually get organized and the state will eventually complete the necessary regulations to handle what seems to be like another gold rush.
    And consumers need time to educate themselves and learn about the various Cannabis Products as well. And there is plenty to learn about, including how and why to avoid products from unlicensed operators and the harm that their un-tested products can cause.

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    • Pat on

      So Kris, what business are you in? Real estate? Of course every state is going to have a a different culture/way about going about things. However, the gov. of ca, has been intimately aware of the cannabis issue for at least five decades. Five decades. In case you need clarification: That’s over 50 yrs. So, why the chaos? There shouldn’t have been any if the legislators had paid attention and taken core constituencies to heart. But they didn’t. And that;s the whole point. The “law” has been framed in the manner that it has. So, there is no “eventual organization” or “completion of the necessary regs” for the 99% that got shut out. Meanwhile, those that got licensed, with each and every passing day, rob opportunity costs from that 99+%. Something that you seem to have missed.

      “Consumers” were out there long before this all got “regulated” in the manner that it has. And, the state doesn’t give much of a damn about the public health component that you allude to. And it could be that many of these unlicensed people care MORE about their fellow man than those that got licensed ( seems to me that you’re categorizing all unlicensed growers,etc. as those that take short-cuts and don’t test or grow/process their product organically/reasonably. With all the stats out there ( prior to legalization in ca. ) that not one death has been recorded as a direct result of MMJ ingestion, what in the hell are you getting at? You strike me as an amoral opportunist attempting to get in in tight with the establishment that’s oppressing the rest.

      Reply
  5. George Bianchini on

    “there is little incentive to go legal except for fear of DEA gestapo tactics and local police assistance.”
    Debra, The fear of the DEA is the same as it always has been, the odds of getting busted is very slim. Now with Lori Ajax’s version of prop 64 the incentive to go unlicensed is a no brainer. Even if the locals shut down or chop down an unlicensed vendor, it is no longer a felony, just a simple misdemeanor that requires a ticket. But It’s the states version (not the voters) of cannabis rules and regulations that provides an unheard of opportunity for those that read the 246 pages of rules to determine which way they go. Most have gone the way of good customer service, a much better price that pleases the consumer (about half) and a lifestyle of working with a wonderful plant that brings joy to most all that consume it. Some call this the black market. Most I have discussed this with agree that the state and it’s alcohol Board is doing all it can to have prop 64 fail. Our former cannabis industry has been sold out to the corporate vultures that are selling stock that is worthless with pipe dreams of how large the industry is going to be. The industry is already large and cannabis is already consumed by those who desire it, but these new comers with nothing but profit in mind think that the market will grow 1000 fold. It won’t. Medical MJ might, but when you look at the corporate owned web sites, even the MMJ stores are just THC driven. The real patients that fueled this industry are getting fu**ed. While I personally am BCC licensed – Twice. I am left with a feeling of doing the proper thing the proper way, Yet I also feel this is wrong, very wrong. I have seen most of the vendors I used to work with, the ones that made wonderful products, flushed from the system, one designed to exclude them in favor of Lori Ajax’s new matrix.
    The BCC is in violation of code 26013, 26014 as well as other codes. They have broken the law and should be fired after they are prosecuted or before, I’m ok either way. When Gavin Newsome cleans up this mess I hope he is smart enough to put professional cannabis folks on the board. The majority of the board members now can’t tell the difference between a tomato plant and a pot plant, yet have the power to destroy the lives of thousands who built this industry.

    Reply
    • Pat on

      Thanks four your insights/candidness, George. However, I think Gavin is part of the “machine that you think should be brought down. I think Gavins’ more of a player than Brown. By a long shot. I think a better though out/scrutinized proposition that attempts to combat the corrupted outcomes of the current law might help.

      Reply

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