The statistics are out; California earned approximately $300 million in taxes during the first year of recreational cannabis sales in the state. This information was released by the Department of Tax and Fee Administration in California on February 19.
While the $300 million tax collection is high, it is way below what the state had initially anticipated to collect during the first year of commercial cannabis sales ($655 million). Two reasons may explain why the taxes collected were below the projected figure.
First, it is hard to predict with any degree of certainty what quantity of cannabis will be sold if the state doesn’t have any historical data to rely upon when making those projections. Any figure arrived at is therefore likely to be a “guesstimate” at best.
Secondly, most city and local authorities, up to 75 percent of them, banned any business activity related to cannabis within their jurisdictions. This meant that recreational cannabis could only be accessed in a few areas within the state.
This same scenario played out in all the states where recreational cannabis was legalized. However, those local authorities gradually came around and permitted cannabis businesses to open so that residents can get jobs and the local authorities can also collect taxes.
California also expects more local authorities to come on board and cannabis sales will soar once access is ramped up in more cities and municipalities.
Another important fact to note about the taxes collected by California in 2018 is that the other states that also ended prohibition in 2016 earned “peanuts” if their collections are compared to California’s.
For example, Nevada collected only $69.8 million while Massachusetts is likely to collect $60 million once it completes its first year of recreational sales.
The collections in those other states are understandable because none of them comes even close to the size of California’s economy.
California is justified to be optimistic about future tax revenues from recreational marijuana because an analysis of the 2018 taxes shows that there was a general upward trend from one quarter to the next. This clearly paints a bullish picture for the industry going forward.
More reason for optimism also comes from the fact that the earnings in just 2018 triple or more than triple the annual taxes that the state had ever collected from the sale of medical marijuana throughout the 23 years when medical cannabis was available in the state.
While California seems to be on course to collect $1 billion as tax revenue from recreational marijuana sales within three years, industry players are crying out for a reduction in the taxes levied. It remains to be seen whether their calls will be heeded by the lawmakers since any change requires a supermajority before Proposition 64 can be amended.
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