A thriving underground cannabis market and slower than projected legal sales have caused California to slash the windfall of tax revenue it expected to reap after legalizing cannabis.
The state is now projecting weed taxes will amount to $288 million for the year that ends in June, and $359 million for the following year. That’s a reduction of $67 million and $156 million, respectively, from Gov. Gavin Newsom’s January budget forecast.
The projected tax bonanza — which earlier was expected to be $1 billion a year — was a major selling point for making marijuana legal in the Golden State.
California is reeling back its expectation of tax receipts from pot sales at a time when several East Coast states are looking at marijuana legalization as a potential tax windfall to beef up state finances. In Pennsylvania, for instance, Auditor General Eugene DePasquale said in a report last year that the state could generate more than $580 million in taxes by legalizing marijuana for adult recreational use -- at 35 percent tax on retail pot sales.
DePasquale’s report assumed nearly 800,000 Pennsylvanians consuming cannabis every month and spending a little more than $2,000 a year on it. He said Philadelphia, as a tourist destination, could reap an additional $6.9 million if it imposed a 2 percent local tax on legal marijuana sales.
In California, Proposition 64 — the law approved by voters in 2016 that legalized marijuana — outlined a long list of programs that would benefit from tax dollars collected from pot sales. Those proceeds have not materialized.
California’s diminished optimism for retail marijuana sales comes as shops continue to be undercut by a thriving illicit market, which consumers tap to avoid taxes on legal weed that can approach 50% in some communities. In addition, many municipalities have either banned marijuana sales or not set up regulations for legal cannabis businesses to operate.
California state taxes include a 15 percent levy on purchases of all cannabis and cannabis products, including medical marijuana. Local governments are free to add taxes on sales and growing, which has created a confusing patchwork of rates around the state.
The Associated Press contributed to this report.