Subscribe

California cannabis tax revenue dips in early 2022; North Coast firms blame regulation

Reflecting industry tension with regulators and the general economy, California saw first quarter cannabis tax revenues drop compared to the last quarter of 2021.

2022 first quarter total returns amounted to $293.5 million for the period collected as of May 17 (while taking into account late returns for the period ending March 31), the California Department of Tax and Fee Administration (CDTFA) reported. The $293.5 million contrasts with $316.5 million taken in for the fourth quarter in 2021, a 7% decline.

Breaking down the $293.5 million, tax revenue from excise taxes was $156.3 million, while sales taxes were $105.5 million. Both of those are charged when products are sold. The tax levied on growers yielded $32.6 million. Those figures also showed drops in comparison to the first and last quarters of 2021, the state tax agency reported May 26.

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

That became a point of contention for cannabis operators late last year when tax rates went up at a time the industry faced unprecedented challenges. A glut in product, especially as mega farms flourished, led to a plummet in the wholesale price. Meanwhile, the illicit market thrived by undercutting the legal businesses, industry insiders contend. The threat of market collapse caused a tax revolt, with about half the growers opting to fallow their grounds until conditions change.

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

Then, other obstacles came to bear a heavy burden on the market economically.

“The one thing we’re seeing is more retail demand for cannabis remains strong, but the transactional value is less,” said Eli Melrod said, CEO of Solful, which operates dispensaries in Sonoma County. He said that’s a sign consumers are responding to inflationary pressure by cutting back.

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

“It’s a really tough environment now. A lot of brands have great product, but the illicit market is going strong,” said Napa Valley Cannabis Association President Stephanie Honig, also of Honig Vineyard & Winery in Rutherford. “A lot more needs to be done.”

State adds to toolbox

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

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

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

One of the things government is attempting to help with is the ability for customers to find retail locations using an online map. That’s important because the state cannabis agency discovered while building the data tool map that only 44% of cities and counties allow the licensing of at least one cannabis business type. And 56% prohibits the licensing of all types.

The webpage, which includes a map, statewide statistics and a search function, underscores challenges to licensing access more than five years after Californians voted to legalize the right for adult, recreational use of cannabis.

“This data helps Californians understand the work we have ahead of us in realizing the promises of cannabis legalization, including supporting access to a safe, legal, and equitable cannabis market across the state and combating the unregulated, illicit market,” state cannabis control Director Nicole Elliott said in a statement.

California Gov. Gavin Newsom’s May budget revision works to fund programs aimed at helping to aid local retail access, since the data tool found gaps in the state where access falls short. The state cannabis control agency pledged to update 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,” California Cannabis Industry Association Executive Director Lindsay Robinson told the Business Journal, suggesting the state launch a promotion to show “how to use it.”

Tak Sato, president of the Los Angeles-based Shryne Group that manages Stiizy dispensaries in Santa Rosa and Suisun City, cited “a lot of confusion” exists for consumers to find legal retail shops.

“Often times, consumers may not be aware that the store they frequent is an illicit store because many look and feel like legal stores. It is helpful that the state launched this new data tool,” Sato said, adding another benefit that the map includes where stores can be. “The state’s tool also shows a map where legal cannabis businesses are allowed.”

Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. For 27 years, Susan has worked for a variety of publications including the North County Times, Tahoe Daily Tribune and Lake Tahoe News. Reach her at 530-545-8662 or susan.wood@busjrnl.com

Cannabis tax revenue by the numbers

2022 first quarter

Excise: $156.3 million

Cultivation: $32.6 million

Sales: $104.5 million

Total: $293.5 million

2021 fourth quarter

Excise: $160.6 million

Cultivation: $39.9 million

Sales: $115.9 million

Total: $316.5 million

2021 first quarter

Excise: $161.8 million

Cultivation: $40.4 million

Sales: $109.7 million

Total: $312 million

Source: California Department of Tax and Fee Administration

This story was corrected to reflect Gov. Gavin Newsom’s May budget revision will not fund the data tool, but instead is aimed at local programs designed to increase access to consumers buying cannabis legally.

Show Comment

Our Network

The Press Democrat
Sonoma Index-Tribune
Petaluma Argus Courier
North Bay Business Journal
Sonoma Magazine
Bite Club Eats
La Prensa Sonoma
Sonoma County Gazette