California reportedly missed their 2018 cannabis tax revenues, according to a story from the San Jose Mercury News. Yes, like so many other things in this complex shift to a regulated and legal market, the tax revenue was slow on the uptake. With approx. two-thirds of the initial revenue forecast making its way to state coffers. But while tax revenue was lower than anticipated for 2018, the Golden State’s cannabis future remains … golden. [Sorry. –Ed.]

High Taxes and Thriving Illegal Market Dragged Tax Revenue Down

For states that are just getting into a regulated adult-use marketplace, learn from California. California’s adversely high tax rates at the state and local level in addition to consumer buzz surrounding a legal adult-use market, if anything, fueled California’s thriving illegal market what with consumers balking at tax-inflated sticker prices in legal and licensed dispensaries.

Hindsight is 20/20, but arguably a wiser tax model would have started with a lower introductory rate, to help drive consumers away from illegal markets, and then incrementally raised taxes across five years.

The good news? California’s new governor, Gavin Newsom, is sending National Guard troops to NorCal grow sites to try and better control illegal grow and supply chains. More good news? State Treasurer Fiona Ma and assemblyman Rob Bonta from Oakland are continuing their push for a temporary lowering of excise cannabis taxes from 15% to 11% while also putting a moratorium on cultivation taxes until 2022.

While the excise tax is nice for retailers and consumers alike, that cultivation tax moratorium is a huge incentive for many unlicensed cultivators within California to apply for local and state licenses and come into compliance. As we discussed a few weeks back, the cost of non-compliance is getting more and more expensive at this point. For cultivators becoming compliant would not only offer them a tax reprieve for the next two years or so, it also would give state authorities an ever-clearer picture of who is still not compliant.

You guys want more good news? California’s adjusted projected tax revenue is right on target/slightly ahead of schedule for 2019’s fiscal year.