California Cannabis Tax Revenue Drops in Early 2022; North Coast businesses attribute drop in revenue to regulations

Reflecting industry tensions with regulators and the broader economy, California saw cannabis tax revenue in the first quarter versus the last quarter of 2021.

Total returns for the first quarter of 2022 were $293.5 million for the period collected to May 17 (while accounting for late returns for the period ending March 31), the California Department of Tax and Fee Administration (CDTFA). The $293.5 million contrasts with the $316.5 million collected for the fourth quarter of 2021, a decrease of 7%.

Breaking down the $293.5 million, tax revenue from excise taxes was $156.3 million, while sales taxes were $105.5 million. Both of these are billed when the products are sold. The tax levied on producers brought in $32.6 million. Those numbers also showed declines from the first and last quarters of 2021, the state tax agency reported on May 26.

Since the state began taxing cannabis in January 2018, tax revenue to date has brought in $3.76 billion.

This became a point of contention for cannabis operators late last year when tax rates rose at a time when the industry faced unprecedented challenges. A glut of produce, especially as mega-farms flourished, caused wholesale prices to plummet. Meanwhile, the illicit market has thrived by undermining legal businesses, industry insiders say. The threat of market collapse has sparked a fiscal revolt, with around half of producers opting to lay their land fallow until conditions change.

“We are not surprised by this (drop in tax revenue) because right now the legal industry is so heavily taxed and regulated that it is impossible to be profitable in this market with this tax structure,” said Kaleena Quarles. , CEO of Abide. Napa dispensary.

Then, other obstacles came to weigh heavily on the market economically.

“The only thing we see is that retail cannabis demand remains strong, but the transaction value is lower,” said Eli Melrod, CEO of Solful, which operates dispensaries in Sonoma County. He said it’s a sign that consumers are reacting to inflationary pressures by cutting spending.

“They’re paying more for other things, and their pocketbooks are tighter,” Melrod said.

“It’s a really tough environment now. Many brands have great products, but the illicit market is booming,” said Stephanie Honig, president of the Napa Valley Cannabis Association, also of Honig Vineyard & Winery in Rutherford. “There is still a lot to do.”

Status adds to toolbox

To help with efforts to strengthen the legal market, the California Department of Cannabis Control launched a program on May 26.

One provides drought relief to growers and another is a data tool that features a map to help consumers find approved retailers in their areas.

“Lack of access to consumers is a problem, and the government is not helping us get to the point of legalization,” Honig said, hailing the mapping tool as an improvement. “Everything helps.”

One of the things the government is trying to help is the ability for customers to find outlets using an online map. This is important because the National Cannabis Agency discovered when creating the data tool map that only 44% of cities and counties allow licensing of at least one type of business. of cannabis. And 56% prohibit licenses of all types.

The webpage, which includes a map, statewide statistics and a search function, highlights challenges in accessing licenses more than five years after Californians voted to legalize the right to recreational and adult use of cannabis.

“This data helps Californians understand the work ahead of us to deliver on the promise of cannabis legalization, including supporting access to a safe, legal, and fair cannabis market across the state and fighting the market illicit and unregulated,” the state’s director of cannabis control said. said Nicole Elliott.

Funding for the data tool comes from the $20.5 million set aside to help the industry in California Governor Gavin Newsom’s May budget review. The National Cannabis Control Agency is committed to updating it on an ongoing basis.

“This seems like a great opportunity to do something to help the cannabis industry. Hopefully (the state) will add an educational campaign to it,” Lindsay Robinson, executive director of the California Cannabis Industry Association, told The Business Journal. , suggesting that the state launch a promotion to show “how to use it”.

Tak Sato, president of the Los Angeles-based Shryne Group which operates Stiizy dispensaries in Santa Rosa and Suisun City, said there is “a lot of confusion” for consumers to find legal retail stores.

“Often consumers are unaware that the store they are visiting is an illicit store, as many look like legal stores. It’s helpful that the state has launched this new data tool,” Sato said, adding another benefit that the map includes where stores can be. “The state tool also shows a map of where legal cannabis businesses are allowed.”

Susan Wood covers law, cannabis, manufacturing, technology, energy, transportation, agriculture, and banking and finance. For 27 years, Susan worked for various publications, including the North County Times, Tahoe Daily Tribune and Lake Tahoe News. Contact her at 530-545-8662 or [email protected]

Elisha A. Tilghman