Government Use of Marijuana Tax Revenue

Tax revenue collected from legal sales of cannabis in California may have fallen short of projected amounts, but it nonetheless is being used to support the homeless, needy families, low-income entrepreneurs, and to fund scholarships.

The passage of Proposition 64 (the Adult Use of Marijuana Act or AUMA) in 2016 made recreational marijuana use legal for adults in California. A 15% excise tax was imposed on all sales of cannabis beginning January 1, 2018, and promised to be an important source of revenue for the state. Unfortunately, actual tax revenue from legal marijuana sales has fallen short of projections.

Following Colorado’s lead

Earlier this month, Colorado Governor John Hickenlooper’s office issued a press release indicating that the State of Colorado has generated over $1 billion from the legal marijuana industry since 2014, the year that recreational marijuana sales were legalized there. As the fastest-growing business sector in the state, legal marijuana sales in Colorado have exceeded $6.56 billion and the nearly 3,000 Colorado marijuana businesses currently employ over 41,000 licensed individuals. Tax revenue has been utilized to combat homelessness, provide behavioral health treatment, and fund student scholarships, among other things.

In California, although actual marijuana sales tax revenue has fallen far short of the $1 billion projected, the amounts collected have funded worthwhile programs throughout the state, such as:

  • Loans for low-income entrepreneurs (Oakland’s “social equity” program)
  • Assistance for low-income parents and their children (Santa Cruz’s “Thrive By Three” program)
  • Homeless shelter and special services for veterans and others (Monterey County)
  • Reinvestment back into the cannabis industry through grants and a regional marketing plan (Humboldt County)

Marijuana legalization – California’s challenges

More than half the country currently has laws on the books legalizing marijuana in some form or another, and California is one of 11 states that have legalized recreational marijuana – joining Alaska, Colorado, the District of Columbia, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington.

So why the shortfall in California? Some blame the high tax rate for keeping the illegal market in business. Others say that excessive regulations have resulted in the licensing of less than 1,000 cannabis businesses although 6,000 were anticipated. In addition, a number of conservative cities and municipalities have resisted the establishing of cannabusinesses through restrictive zoning regulations and lawsuits, while permissive counties have delayed implementing taxes on the product!

Consult our highly experienced California marijuana tax attorneys

The San Francisco tax law firm of Moskowitz, LLP has a team of lawyers and accountants who have supported marijuana businesses for many years. To learn more about how we can help you with federal, state and local tax issues, contact our highly experienced California Cannabis Tax Attorneys today.