California revenue crash as pot taxes miss budget by $1 billion

California's treasurer is lobbying the state Legislature to slash recreational pot taxes by 30 percent after legalizing sales are falling $1 billion short of budgeted tax revenue.

California tax collection is being hammered, with the state controller reporting a $4.8-billion revenue miss in December, PG&E bankruptcy potentially wiping out $5 billion in taxes, and the treasurer warning that recreational marijuana taxes could fall $1 billion short.

Treasurer Fiona Ma and Assemblyman Rob Bonta (D-Alameda) introduced "Temporary Cannabis Tax Reduction" (A.B. 286) to "reduce California's cannabis excise tax from 15 percent to 11 percent and suspend the cultivation tax altogether through 2022."

California voters passed a medical marijuana initiative in 1996 that allowed regulated sales at state-licensed health dispensaries.  But advocates put Proposition 64, the "Control, Regulate and Tax Adult Use of Marijuana Act," on the 2016 ballot based on projections that legal recreation sales would generate 1,435 and 1,824 tons of demand, produce $15.9 to $20.2 billion in sales, and soon generate $2.4 to $3 billion in new state taxes.

Legal marijuana sales were projected to hit $4 billion in its 2018 launch year, pass the $5 billion level for statewide beer sales in 2019, and continue to rise as state law enforcement pushed the vast majority of pot sales into legally licensed dispensaries.  

The projections assumed that recreational consumers would be willing to pay about $15.40 per gram from a state licensed dispensary versus the illegal "black market" rate of $7.33 a gram.  Advocates claimed that about $1.3 billion of legal California sales would come from marijuana tourists flying in from states where pot is still illegal.

The expected surge in demand for legal sales of recreational marijuana was projected to support between $8.37 billion and $10.64 billion of total industry activity.  That figure included between 81,141 and 103,145 new jobs generating $3.57 and 4.52 billion in additional California labor income.

But the California Department of Tax and Fee Administration reported in November that cannabis tax revenue for the third quarter of 2018 was only $93.1 million, including $52.4 million in excise tax, $12 million in cultivation taxes, and $28.7 million in sales tax revenue.  With sales up only 15 percent from the prior quarter, tax collection came in $101 million lower than projections that had already been ratcheted down three times.

The pot sales shortfall is also hammering cities like Santa Rosa that tacked on an 8-percent local sales tax and a $25-a-foot dispensary zoning fee.  Santa Rosa marijuana tax collection came in at just $468,000 versus a budgeted revenue of $2.5 million.

Treasurer Ma pleaded at a press conference in Sacramento for marijuana tax relief: "This is anywhere from a $6 billion to a $20 billion industry in California.  So we want to help them ... get into the regulated market and come in from the 'black market.'"

It seems to be a shocking revelation to California tax-and-spend lawmakers that slapping a 45-percent tax on any product can "kill the goose that lays the golden egg." 

California's treasurer is lobbying the state Legislature to slash recreational pot taxes by 30 percent after legalizing sales are falling $1 billion short of budgeted tax revenue.

California tax collection is being hammered, with the state controller reporting a $4.8-billion revenue miss in December, PG&E bankruptcy potentially wiping out $5 billion in taxes, and the treasurer warning that recreational marijuana taxes could fall $1 billion short.

Treasurer Fiona Ma and Assemblyman Rob Bonta (D-Alameda) introduced "Temporary Cannabis Tax Reduction" (A.B. 286) to "reduce California's cannabis excise tax from 15 percent to 11 percent and suspend the cultivation tax altogether through 2022."

California voters passed a medical marijuana initiative in 1996 that allowed regulated sales at state-licensed health dispensaries.  But advocates put Proposition 64, the "Control, Regulate and Tax Adult Use of Marijuana Act," on the 2016 ballot based on projections that legal recreation sales would generate 1,435 and 1,824 tons of demand, produce $15.9 to $20.2 billion in sales, and soon generate $2.4 to $3 billion in new state taxes.

Legal marijuana sales were projected to hit $4 billion in its 2018 launch year, pass the $5 billion level for statewide beer sales in 2019, and continue to rise as state law enforcement pushed the vast majority of pot sales into legally licensed dispensaries.  

The projections assumed that recreational consumers would be willing to pay about $15.40 per gram from a state licensed dispensary versus the illegal "black market" rate of $7.33 a gram.  Advocates claimed that about $1.3 billion of legal California sales would come from marijuana tourists flying in from states where pot is still illegal.

The expected surge in demand for legal sales of recreational marijuana was projected to support between $8.37 billion and $10.64 billion of total industry activity.  That figure included between 81,141 and 103,145 new jobs generating $3.57 and 4.52 billion in additional California labor income.

But the California Department of Tax and Fee Administration reported in November that cannabis tax revenue for the third quarter of 2018 was only $93.1 million, including $52.4 million in excise tax, $12 million in cultivation taxes, and $28.7 million in sales tax revenue.  With sales up only 15 percent from the prior quarter, tax collection came in $101 million lower than projections that had already been ratcheted down three times.

The pot sales shortfall is also hammering cities like Santa Rosa that tacked on an 8-percent local sales tax and a $25-a-foot dispensary zoning fee.  Santa Rosa marijuana tax collection came in at just $468,000 versus a budgeted revenue of $2.5 million.

Treasurer Ma pleaded at a press conference in Sacramento for marijuana tax relief: "This is anywhere from a $6 billion to a $20 billion industry in California.  So we want to help them ... get into the regulated market and come in from the 'black market.'"

It seems to be a shocking revelation to California tax-and-spend lawmakers that slapping a 45-percent tax on any product can "kill the goose that lays the golden egg."