California On Track To Collect $1 Billion In Cannabis Taxes

California’s booming cannabis industry has been around much longer than many in the United States, and now, the state is on pace to collect as much as $1 billion in taxes from sales made in 2020, a record landmark for the local industry. 

When cannabis was first legalized in California, it took two years for the state to get as much as $1 billion in taxes, but now, that number is coming a lot faster to the thriving industry, despite this year’s setbacks. Totals for this year are not yet officially in, but things are looking good. 

This new number is according to Governor Gavin Newsom’s team, who claim that despite the pandemic, things are trending at a high number across the state for California’s state tax revenue. Sales of cannabis have continued to climb this year despite the pandemic, reaching $777 million in excise taxes, $306.7 in the third quarter alone, which are both significant numbers.

“This puts the industry on track to generate closer to $1 billion this year, which is quite impressive,” said Nicole Elliot, keynote speaker at a virtual cannabis conference discussing finances. 

The Unregulated Market Still Thrives

However, despite this boom, California still has an illicit market. Although they are expecting to see $3.1 billion in total revenue from legal cannabis sales, they are also still expecting $8.7 billion from the illicit market. In other words, that is a lot of cannabis income that is still untaxed. 

But, despite this struggle, California has managed to keep sales up during the pandemic by taking smart measures like allowing curbside pickup to minimize contact and allowing licensing fees to be renewed this summer, so that operating fees don’t overwhelm smaller, legal businesses. All of this is helping legal cannabis not only survive, but thrive.  

“The state implemented a 60-day renewal fee deferral program between May and August, and we saw about a quarter of our eligible licensees take advantage of that program, which was pretty, pretty impressive,” Elliot said. “The state created some tax relief programs to aid with cash flow, especially for this industry in the absence of access to capital and federal aid.”

Ironically, though this tax milestone is a win for the legal industry, many California industry insiders claim that it is precisely because of the high tax rate that it’s easier to operate or shop in the illicit market. While cannabis tax money can do good things for the community and bring wealth to the region, many are concerned that too much taxing will keep illicit market cannabis thriving and further hurt the regulated industry. 

“I think we as a legal market have a very tough time undercutting the unregulated and illegal businesses,” said Kristi Palmer, co-founder of Kiva Confections in Alameda. “Overall, I think the barriers of entry are too high right now.”

Despite complaints against high taxes in California, the industry is currently enjoying a boom in spite of shutdowns, and the taxable income raised this year makes a huge difference for the state.