Pew report: Recreational cannabis tax revenues remain volatile

Tax revenues generated by the legal recreational marijuana industry are highly unpredictable because of the lack of reliable data, according to a report released Monday by The Pew Charitable Trusts, an independent nonprofit organization.

Uncertainties regarding sales, prices and demand make projections difficult, according to the report.

The study focuses on why states need to be cautious about viewing MJ tax revenues as a stable funding source.

But many of the factors highlighted in the report also apply to investors and cannabis-related businesses trying to make projections in new and growing rec markets.

“The biggest hurdle for states is the lack of reliable data,” Alexandria Zhang, a Pew research officer, said during a briefing about the report.

Zhang was one of four authors of the report.

Other challenges, she said, include:

  • Accurately estimating marijuana demand, degree of consumption, prices and how prices change demand. Revenue growth tends to slow significantly as markets mature.
  • Predicting consumer preferences, which change over time and also vary from market to market.
  • Forecasting the amount of conversion from a black market to a legal market.
  • The impact of tourism demand.
  •  Competition from neighboring states.

How states regulate the industry also has a big impact on prices and tax revenues, she said.

She cited California, which collected only $345 million in marijuana tax revenues in 2018, far below the $643 million projected, in part because of the state’s slow conversion from an illicit to legal market.

Heavy regulation, high taxes and high prices as well as municipal bans were also said to dampen legal sales.

For more on the Pew report, click here.

Jeff Smith can be reached at [email protected]

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