California’s nascent marijuana is not performing as expected, hitting the state right in the budget.
State budget documents released Thursday show the Newsom administration is sharply scaling back what it expects to collect in cannabis tax revenue through June 2020—in all, a $223 million cut from projections just four months ago.
The reduced income for the state treasury means that slower-than-expected pot sales are punching a hole in California’s budget.
One very predictable problem facing the California marijuana market is the greedy tax attached to all marijuana purchases. With a tax as high as 50 percent in some communities, it’s more cost effective to purchase marijuana on the black market.
The New York Times reported that “law enforcement officials say the unlicensed, illegal market is still thriving and in some areas has even expanded.”
“There’s a lot of money to be made in the black market,” said Thomas D. Allman, the sheriff of Mendocino County, whose deputies seized cannabis oil worth more than $5 million in early April.
Another reason the market is under-performing is the typical California regulatory process: “state regulators have struggled to meet the demand for licensing, and many communities have either banned commercial sales or not set up rules for the legal market to operate.”
The projected revenue from marijuana sales was a major selling point for the ballot initiative to legalize cannabis.
Proposition 64, the law approved by voters in 2016 that opened the way for legal pot sales for adults, outlined a long list of programs that would benefit from tax dollars collected from pot sales.
State taxes include a 15% levy on purchases of all cannabis and cannabis products, including medical pot. Local governments are free to add taxes on sales and growing too, which has created a confusing patchwork of rates around the state.
As of now, 80 percent of the 500 California municipalities do not allow marijuana retail business. Governor Newsom remains optimistic. “It takes time to go from something old to something new,” Newsom said in Sacramento.
Photo credit: Robyn Beck/AFP/Getty Images