There are high promises for the cannabis industry, especially here in California. Marijuana was legalized in California back in 2016 thanks to Prop 64, and retail sales of cannabis began 2 years after that. Since then, cannabis has been a steadily growing business. Last year, when the COVID-19 pandemic began, the cannabis industry had to quickly adapt to thrive in the situation. From everything between COVID regulations and vaccine mandates, the cannabis industry was able to adjust accordingly. In fact, the profit earned by the industry has been outstanding, but what also has been growing in the tax revenue. California’s marijuana tax revenue rises as the industry grows, why? And what does this mean for us as consumers?
California’s Marijuana Tax Revenue Rises. Why?
When cannabis was made legal in California back in 2016, the bill came with two new forms of taxes. First, was the tax on the cultivation of all harvests. This means that any cannabis products harvested for retail sales were to be taxed. Second, there’s an excise tax on cannabis and any products made with it.
This is not only exclusive to marijuana flower. This tax includes products that may have CBD and THC, including topicals, tinctures, and edibles. On top of this, there’s also the usual sales tax, both state and local, that gets applied to the purchase. All of these eventually end up adding up and result in high tax revenue for California. Additionally, since sales of cannabis have also increased, the tax earnings have as well.
For example, in the early months of the COVID-19 lockdown in 2020, there was a large increase in purchases. The cannabis industry was one of the few industries to thrive during the lockdown. As a result, in the third quarter of 2020, the total tax revenue earned in California was $306.7 million.
This chart demonstrates the steady growth of tax revenue earned by the cannabis industry. Towards the end of 2020’s third quarter, there was a slight dip in earnings. This was due to the rise in unemployment and other financial difficulties experienced nationwide. Eventually, California’s marijuana tax revenue began to rise again.
Where is California’s Marijuana Tax Revenue going?
During the 2016 campaign, Prop 64 promised to raise approximately 1 billion dollars worth in tax revenue. It seems that this may be possible of occurring. For example, state cannabis tax revenue in 2019 rose 35% over the tax revenue yearned in 2018. According to Leafly, here’s a breakdown of where the tax revenue from California’s cannabis tax is going towards.
- $140.8 million for 11,000 low-income children in child care
- $44.8 million to police and fire departments in cities with dispensaries
- $39.9 million to combat illegal grows and wildland restoration
- $37.5 million for helping thousands of at-risk youth
- $30 million in community reinvestment grants for social workers
- $21.8 million for safer roads
- $57.8 million to license and regulate the industry
- $15 million for cannabis science and policy research
- $100 million in local cannabis business taxes to parks, etc. annually
California Marijuana Tax Breakdown
Understanding the way cannabis is taxed in California is not difficult. A clear breakdown can help you understand how much you’re being taxed on your weed. It’s important to note that the total tax on California cannabis sales varies by location. Different cities can have different local taxes.
First, the excise tax is set at 15%. This is a business tax charged to the retailer and paid to the distributor. The excise tax usually goes toward state spending. As indicated above, this can go into things such as environmental cleanup, law enforcement, and drug prevention programs.
Second, the state sales tax is set from 8 – 10%. This varies depending on where you buy. This tax goes on top of the sales price and cannabis business tax. However, medical patients with state-issued medical marijuana cards are exempt from this tax.
Third, the cannabis business tax is set from 5 – 15%, depending on the local government. This tax is charged at the point of sale on top of the product’s selling price. This revenue will usually go toward local services.
Cultivation taxes are usually paid by distributors, so this is not a concern for consumers.
What does this mean for the consumer?
California’s marijuana tax revenue increase is a result of an increase in cannabis purchases. If you’re someone who frequently purchases weed, these taxes affect you greatly. As previously mentioned, where you live and buy can determine how much you’re paying in taxes.
According to this article, Hollywood and Los Angeles are the two cities with the highest marijuana tax. Oakland and San Jose are runner-ups. In fact, Oakland’s cannabis taxes are 417 times higher than Oakland’s taxes on guns.
Keep local business and sales taxes in mind when heading out to purchase your weed.