California brought in revenue of $116.6 million through taxing the cannabis industry in the first quarter of 2019.
Excise tax amounted to $61.4 million, cultivation tax generated $16.8 million, and sales tax from cannabis businesses came to $38.4 million, the California Department of Tax and Fee Administration revealed. That would put total adult-use sales at $409.3 million in Q1, an increase of 92% on the corresponding period in 2018.
Medical marijuana sales are exempt from tax. Analysts’ consensus states that around 40% of cannabis sales in the Golden State are for medical purposes, so that would put total Q1 marijuana sales in California at just over $680 million.
A major concern for the state’s flourishing industry is the inability to use federally regulated banks, which are prohibited from handling money that comes from criminal activity. Since cannabis is illegal at a federal level in the U.S., banks must treat it as proceeds of crime and they cannot accept customers from the marijuana industry.
If they do, they cannot receive federal deposit insurance. This has led to a situation where California’s cannabis companies have “millions of dollars buried in barrels”, putting staff at risk of violent crime.
Revenue could be undeclared due to the sheer number of cash transactions, meaning California is not receiving anywhere near as much tax as it should. That would then mean sales in California are actually much higher than $680 million over a three-month period.
The state made $345 million from tax in 2018, which is well below the predicted $1 billion. If it maintains current rates, it is on course to bring in $466.4 million in 2019.
However, Statista forecasts that marijuana sales in California will reach $4.7 billion in 2019 and the state should be earning more than it currently is.
That is one reason behind the push to create a special class of state-chartered banks to serve the marijuana trade. Bill S 51 would put an end to the reliance on cash among producers and retailers in the state.
Yet the 15% excise tax rate charged by California has left legal dispensaries struggling to compete with the thriving black market, as has the cultivation levy of $9.25 per ounce of cannabis flowers. Further teething problems have been caused by red tape, which has held up sales permit applications and cultivation licenses.
Operators in the state have bemoaned regulatory headwinds and an increase in taxes for hitting their revenue projections.
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