Black market cited as CA nets only $74 million on second-quarter marijuana taxes

California cannabis taxes continued to miss expectations in the second quarter of 2018, bringing in roughly $74 million to state coffers.

The state’s thriving illicit market is likely a big reason, as is the fact that most local governments in California still prohibit legal marijuana businesses and sales.

“After six months of legal cannabis sales, there is a staggering … gap between today’s tax revenue numbers and what voters were promised,” said state Assemblyman Evan Low, a Democrat from Campbell who heads the Business and Professions Committee.

“Regulators must adapt before California’s lawful cannabis businesses are obliterated by the black market.”

Businesses say hefty tax rates that can approach 50% in some areas are driving business underground.

According to a news release from the California Department of Tax and Fee Administration (CDTFA), the cannabis tax haul from April 1 through June 30 was $74.2 million, including $43.4 million from the excise tax, $4.5 million from the cultivation tax and $26.2 million from the sales tax.

That brings the state tax total for the first half of 2018 to roughly $134 million, including just under $61 million that was collected in the first quarter, according to the release. The figures don’t include local taxes from municipalities and counties.

The state tax revenues stand in contrast to a projection from Gov. Jerry Brown’s office that California would take in $175 million in the first six months of 2018, meaning the industry is still underperforming even though the second quarter did experience a bump.

To help licensed cannabis companies pay their taxes properly, the CDTFA said it has:

  • Opened a new satellite location in Humboldt County.
  • Established an MJ tax advisory group.
  • Launched a pilot program to help retailers pay their taxes.
  • Beefed up security measures for financial transactions.

Associated Press contributed to this report.

18 comments on “Black market cited as CA nets only $74 million on second-quarter marijuana taxes
  1. Dan on

    Nice way for the state to blame others for their own failings. How many licensed retail outlets and cultivators are there? How many licensed labs are there to test “legal” Marijuana in a timely fashion? Are the tax rates listed in the article reasonable and easily doable for those who are licensed? And self admittedly, this doesn’t even include taxes from local counties and municipalities. Setup regulations and a tax schedule that are achievable by the average Joe and they’d be making plenty of money. Oh, that’s right, they’re not looking to take care of the average Joe. They’ve had plenty of time to get their ducks in a row, yet they’ve failed to do so. I have zero sympathy.

    Reply
    • lucky on

      Welcome to States blame game. As legitimate business have paid there fair share of waiting, waiting, waiting and paying facility ridiculous rent and Bending backwards improvements to become compliant, the states ( Jerry Brown crew) has left the average Joe to fend for them selves. Dan i agree with you completely. They will not find sympathy here.

      Reply
  2. CBD Lawyer on

    The State can’t blame the market for the State’s own failed regulatory scheme. The market for the product far predates current regulatory schema and any regulated market must compete with the unregulated market. That means that the proliferation of local rules needs to end. There should be one centralized standard set of rules and taxes that apply statewide. Sure, city and county governments should get a cut of that tax revenue, but they shouldn’t be able to extort the local business as they are now by holding license approval hostage until they get what they want.

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  3. John Fracassini on

    The short-sighted and clueless California politicians and regulators are blowing it. Rather than giving the fledgling MJ industry an opportunity to grow and develop, they are strangling it in the crib with excessive regulation and taxation—not to mention driving users to the black market. How else can you explain the failure of the world’s largest MJ market?

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  4. Carl Meuser on

    High taxes coupled with a myriad of ever changing regulations written with zero consideration of the additional operational costs for businesses are the ultimate subsidy for the underground market.

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  5. Rob on

    Reasonable taxes, an unwavering policy of inclusion of all cannabis businesses (especially the little guy), and streamlined approval processes and the tax money will flow abundantly to our great State. Instead the State is making inclusion impossible and taxing small businesses out of existence. The State should institute a moratorium on taxes and bring everyone on board and then slowly and gently bring in reasonable tax rates. The amount of money that will flow into the state would be tremendous. Everyone wants this to work but the State must make it possible for all to be involved and make a living.

    Reply
  6. Doc on

    Why would anyone who has been buying at unlicensed outlets volunteer to pay another 30%-ish? (Roughly the differential I can see just looking at Weedmaps menus locally.)

    Until the big brains at Cannabis Control can answer that they have no business regulating it. Sadly their answer is going to be to enforce a monopoly of licensed businesses by closing down the unlicensed ones.

    I do find it humorous that one local city is still after many months debating (delaying) their decision on whether or not to allow cultivation and dispensaries. I chuckle because they are home to the majority of unlicensed shops I use.

    Reply
  7. Chris Cahill on

    Until the cities ( leadership and/or voters) permit the free retail market that the state expected, which in many cases still requires passage of local tax measures to pay for their oversight, we won’t get anywhere near the tax revenue estimate. Too many cities are still either outright prohibiting, or severely limiting opportunity via license caps and business type exclusions and unworkable zoning. We are helping clients find a way, but there are far still too many obstacles.

    Reply
  8. Ron Lovick on

    The vast majority of businesses in the Cannabis space would rather operate legally!!
    The (major) Problems ARE…
    WE CAN NOT GET TEMPORARY LICENSES TO OPERATE WHILE THE STATE PROPERLY IMPLEMENTS THE BUSINESS SYSTEMS AND REGULATIONS.

    THE CHOICE IS… SELL IN THE “GRAY MARKET” OR CLOSE THE BUSINESS, AND LAY OFF THOUSANDS OF EMPLOYEES !!

    So as a seasoned businessman of 35 yrs… Does this make ANY sense ??

    Reply
  9. Andre Tate on

    True..I went to numerous meetings throughout the State since 2014 and what I saw was arrogance on the part of those that both advocated in the governance and those unlicensed entities who thought that by going to the open roundtables their words and knowledgebase would somehow segway them into being licensed….Wrong!!!!!!!

    Reply
  10. Ma Dang on

    In my opinion,
    We are witnessing an industry that is quickly changing and maturing faster than ever before and falling victim to big money and big egos along the way.
    From those lobbying the legislature to protect their immoral industries and profits: Tobacco, Alcohol, Pharma, Petroleum and Religion to Regulators who think they know what’s best for public safety and those Black-marketeers, who disrespect the environment and seek profits over compassion.
    The whole thing fell apart in California when the acreage caps were removed, license stacking allowed and municipalities allowed to negate rather than regulate.
    I have been a medical patient since 1965, a cultivator since 1967, a breeder since 1971 and a collector / preserver of landrace and medical genetics since 1975. I am not a businessman, I have never sold a gram of Cannabis, but have used and given the medicine away to those less fortunate and the genetics I found to those who could make better medicine than I.
    I am saddened by the greed and egomaniacs of the community I belonged to for over 50 years is all about now. I will still continue to participate in helping to preserve the old genetic material and phenotypic profiles, but I have to say, ” I’m really gettin too Old for this …”.
    kindness costs you nothing.

    Reply
  11. Doc Thorne on

    What’s happening in California (where cannabis is legal) scares the hell out of me and worries me that our State (North Carolina where it IS NOT legal nor even has a timeline for a NCGA vote) will trek down this same misguided and grossly unfair path of over-regulation and government greed.

    Reply
  12. mike on

    they say don’t account to malice what is just plain stupidity. sure chaos is the watchword but maybe by intent on the states part because putting incompetents to design and run it ensures failure so the justification to only let the big tobacco and booze companies will appear as the only solution. toss in the locals thay must approve first and they are sitting back to let the need for their approvals be so strong that they can extract the bribes they are waiting for either openly or probably coupled with cash under the table to grant local approvals. business as usual but who thought it would have been any different once rec was approved. too bad for all those that truly need it as medicine but when has a pol put public good over personal gain. so underground thrives.

    Reply
  13. George Bianchini on

    The prior posts and statements make it abundantly clear that the state is in violation of code 26013 and 26014. These are violations that require legal action and the removal and possible criminal sanctions of those responsible for these serious violations. The decisions made by the BCC have caused the most incredible promotion of the Black Market we have ever seen. It is very clear the alcohol industry is controlling the BCC. Some have suggested that alcohol industry execs were imbedded into the BCC at the request of Governor Brown. Mark my words, soon we will start seeing massive investments of alcohol dollars in an effort to take OUR industry from us. The fox is in the hen house! And the fox can’t have my chickens!

    Reply
  14. Pat on

    I agree George. However, that fox won’t be eating any of your chickens. That’s because he’s been busy gorging down all those eggs before they get an opportunity to hatch. And he’s preparing those eggs, Benedict ( Arnold ) style. His favorite. All those embryotic chickens never had a chance.

    Reply
  15. Pat on

    State Assemblyman Evan Low, a Democrat from Campbell: “Regulators must adapt before California’s lawful cannabis businesses are obliterated by the black market.”

    Obliterated. Pretty heavy word. How is it that there was such a big disconnect between the legislature/regulators from what they anticipated vs what actually is happening now? The short answer is: They’re not stupid. They’re crafty and corrupt.

    One answer might lie in the content of the EIR that was prepared for the state, and it’s accompanying comments by the public. Were there any comments that identified any significant weaknesses in that EIR that went ignored/unaddressed? Comments on any significant issue that may have been brought up more than once? It might be an interesting read for some attorneys.

    Reply
  16. Pat on

    “To help licensed cannabis companies pay their taxes properly, the CDTFA said it has:

    Opened a new satellite location in Humboldt County.
    Established an MJ tax advisory group.
    Launched a pilot program to help retailers pay their taxes.
    Beefed up security measures for financial transactions.”

    These are all cosmetic “reforms.” They’ll do absolutely nothing to address the root problem; which is the inherent and pervasive corruption of the law itself and the manner of its implementation by state regulators. Meaning: It’s all bu**sh*t. My biggest problem with all this, is that these pencil necks are all getting paid and benefitted as state of ca. employees.

    Reply

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