California, North Bay cannabis tax collections surge
Punctuating a global growth industry forecasted to be $57 billion in five years, California cannabis tax revenue coupled with North Bay collections has risen in sky-high numbers over the last year.
The state collected total tax revenue amounting to $208.4 million for the second quarter in 2020, an increase of over 30% from 2019. According to state statute, California collects 15% on receipts.
The growth also coincides with figures coming out of Santa Rosa, one of the early adopters to allow for retail storefront, cultivation, manufacturing and distribution within city limits since state voters passed Proposition 64 that legalizes adult-use in November 2016.
In its entirety, Sonoma County’s seat raked in $1.9 billion since July 2019, about $500,000 more than in the prior July-to-June fiscal year, the city’s Finance Department reported. That’s an increase of 35%.
The COVID-19-related shutdown beginning in March drove tax revenues up. Between last April and June, the city collected $558,560 versus $415,345 collected in the first three months of the year.
Most cannabis stakeholders attribute these rises highlighted more predominantly in certain quarters to a few factors. Among them for this past quarter compared to the previous year, tax payments to government have been late on both state and local levels.
In some respects, those numbers could be higher.
For starters, Santa Rosa applies a 2% tax on its retail storefront operations out of its 42 registered cultivators, dispensaries, manufacturers and distributors. Some jurisdictions impose double that rate, compared to the city that passed its ordinances in December 2017, a month before the state opened up the markets.
“We decided to keep a lot of our (tax rates) low. The belief is, we wanted to get more companies in. Our focus is on volume,” said Kevin King, the city’s Intergovernmental Relations spokesman. “We’re quite cognizant of the black market out there.”
Case in point, if the black market was cracked down on, legal operations could thrive on a level playing field — especially since a troubling illegal network still exists, said CannaCraft’s top executive Bill Silver.
“What’s surprising actually is how underreported these (numbers) are because of the tax structure. The black market is so large, the government is missing out on all those taxes,” the New Markets president told the Business Journal. “While certainly the tax revenue is substantial, I think there’s opportunity for more growth.”
Silver is convinced that other cities and counties would benefit by jumping on the bandwagon in allowing more cannabis operations, so they can collect tax revenue.
“There’s still a minority of jurisdictions (with ordinances and allowances) in Sonoma County. We do think cities should take a second look at cannabis operations. It’s not too late for other places like Healdsburg or Windsor. Opening up doesn’t have to mean to everything,” Silver said.
San Rafael is experiencing the bounty of a tax windfall. Even without storefront sales or personal cultivation allowed, the Marin County city has collected more than $117,000 in receipts in the first quarter ending March 31, compared with about $43,000 in 2019.
In Marin’s neighboring North Bay counties, Napa County — which is a little slower to adopt laws that legalize more options — is home to Yountville, just north of its county seat. The heart of the Napa Valley with almost 20 wine tasting rooms is entertaining the notion of allowing for storefront retail. Next door due south, the city of Sonoma will have its own ballot measure for such a venture in November.
The potential stretches beyond the North Bay.
Greenbits, a cannabis retail platform based in San Jose, reported on Sept. 17 that it reached $4 billion in annual retail sales as consumers find viability in using the product during a pandemic crisis. The milestone for the software provider represents a 25% growth in 2020, quite the accomplishment in an industry driven by the primary use of cash in receipts.
“We are thrilled to see the cannabis industry defying economic trends by standing strong in the pandemic,” Greenbits CEO Barry Saik said. “Our growth reflects our customers’ success and their critical reliance on a technology solutions that combines software and financial services.”
The Silicon Valley firm has announced new tools and product upgrades for retailers, including inventory management reports, next-generation cash registers and debit-card processes.
Since implementing a statewide network of cannabis delivery to markets in January 2018, California has seized total revenue adding up to $1.45 billion, the California Department of Tax and Fee Administration reported.
Total collections break down to $709.9 million in excise fees, $173.7 million from cultivators and $563.6 million in sales taxes. Certain retail sales of medicinal cannabis are exempt from sales and use taxes, when the consumer provides a valid medical marijuana identification card issued by the California Department of Public Health.
Sales taxes handed over by retail operations have remained strong in the state, with the second quarter adding up to $83.7 million in 2020 — almost doubling the $47.4 million collected in the same period in 2019.
The first quarter, which presented a unique reporting experience with the coronavirus outbreak, came in at $50.2 million in sales, opposed to $38.4 million in 2019. The CDTFA estimates half the taxpayers normally reporting have yet to file a return with the state.
Susan Wood covers law, cannabis, production, as well as banking and finance. For 25 years, Susan has worked for a variety of publications including the North County Times in San Diego County, Tahoe Daily Tribune and Lake Tahoe News. She graduated from Fullerton College. Reach her at 530-545-8662 or firstname.lastname@example.org.