Gov. Jerry Brown estimated Wednesday that the state will receive $643 million from excise taxes on marijuana during the first full year of legalization in California, much more than the cost to the state of issuing licenses and enforcing new rules.
Brown’s estimates are contained in the budget he proposed for the fiscal year beginning July 1, and fall short of some past state projections that legalized cannabis could eventually bring $1 billion annually to the state’s coffers. This year, with only six months of taxing, the budget estimates $175 million in pot taxes.
“The amount and timing of revenues generated from the new taxes are uncertain and will depend on various factors including local regulations, and cannabis price and consumption changes in a legal environment,” Brown’s budget says.
Groups advocating for marijuana users say the massive windfall is unjustified, and they called on the state to reduce taxes and fees to make cannabis more affordable in the regulated market. Otherwise, they warned, the state’s black market will continue to flourish.
“Proposition 64 set the tax rate too high, and everyone I talk to knows it,” said Hezekiah Allen, head of the California Growers Assn.
With California just two weeks into issuing permits for marijuana sales, Brown’s budget says he is “deferring all cannabis-related budget proposals until the May Revision.”
For the 2017-2018 fiscal year, the state budgeted $52 million for regulatory agencies to create and operate a licensing system. The estimate that revenue from taxes could be more than 10 times that amount was not surprising.
Allen’s group supports reducing the 15% excise tax on retail sales to 5%, and making changes to the existing cultivation tax that include eliminating a $2.75 tax per dry-weight ounce of cannabis leaves.
The state taxes are in addition to local sales taxes that can range up to 8.5% and the fees on applying for state licenses, including a $1,000 levy for a license to sell marijuana.
Allen said all the fees and taxes will drive the cost of regulated marijuana up, leading some buyers to get their marijuana outside the legal marketplace.
“We definitely think the state Legislature should put a cannabis tax reform measure on the ballot in 2018,” he said.
Application fees are required to be set at a level to allow the state to cover its cost of processing and issuing permits, which includes doing background checks on applicants, according to Tamar Todd, director of the Office of Legal Affairs for the Drug Policy Alliance, which supported Proposition 64.
She noted that much of the money raised from taxes “is allocated to important state concerns such as youth treatment and prevention, environmental protection and remediation, and investment in communities most harmed by the war on drugs.”
The initiative requires about $15 million each year to go to universities and the California Highway Patrol for studies on marijuana impacts.
Up to $50 million annually is designated to go to grants to local health departments and community-based nonprofits supporting “job placement, mental health treatment, substance use disorder treatment, system navigation services, legal services to address barriers to reentry, and linkages to medical care for communities disproportionately affected by past federal and state drug policies.”
Of the remainder of the tax money, 60% is to go to youth programs, including drug education, prevention and treatment, 20% goes to prevent and alleviate environmental damage from illegal marijuana producers and 20% goes to programs aimed at reducing driving under the influence of marijuana and fighting legalization’s possible negative impacts on health and safety.
Any reduction in taxes would mean less money for those programs, Todd noted.
“That said, the overall price is a concern and may initially fluctuate greatly,” she said.
Proposition 64 requires the state Legislative Analyst’s Office to make a recommendation by Jan. 1, 2020 on whether the tax rate should be adjusted to keep the regulated pot competitive with the illegal market while also discouraging use by minors, Todd said.
“The Legislature should certainly engage in this evaluation and adjust the tax as needed,” she said.