California’s legal marijuana industry faces a year of declining sales as a result of the pandemic-induced recession despite an initial spike in consumer demand after dispensaries were deemed essential businesses, according to details outlined in Gov. Gavin Newsom’s proposed budget. Reports The LA Times
Newsom projected in January that the state’s cannabis excise tax would bring in $479 million this year and $590 million in the fiscal year starting July 1, but his revised budget now forecasts just $443 million this year and a decline to $435 million next year.
“While similar products like alcohol and tobacco tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the COVID-19 pandemic,” the budget says. “Cannabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the COVID-19 recession, and still must contend with competition from the black market.”
In an attempt to help the state’s legal pot industry weather a downturn, the Newsom administration has relaxed some restrictions on how cannabis firms operate, deferred license renewal fees and extended the deadline for filing first quarter tax returns.
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Revised Budget Summary
The Revised Budget Summary provides an update of revenues, expenditures, and reserve estimates based upon the latest economic forecast and changes in population, caseload, or enrollment estimates.
CANNABIS EXCISE TAX
Proposition 64, commonly referred to as the Adult Use of Marijuana Act, levies excise taxes on the cultivation and retail sale of both recreational and medical cannabis.
The cultivation tax is paid on all recreational and medicinal cultivation of cannabis, and was increased, to adjust for inflation, to $9.65 per ounce of flower, $2.89 per ounce of trim, and $1.35 per ounce of fresh cannabis plant on January 1, 2020.
In addition, there is a 15-percent tax on the retail price of cannabis. Both cannabis excise taxes together generated $299 million in 2018-19.
The revenue from excise taxes was revised down from $479 million to $443 million in 2019-20 and $590 million to $435 million in 2020-21.
While similar products like alcohol and tobacco tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the COVID-19 pandemic.
Cannabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the COVID-19 Recession, and still must contend with competition from the black market (See the Statewide Issues and Various Departments chapter for additional discussion).
Full Budget SummaryRevenueEstimates