California is paying a cost for its shaky rollout of its legal marijuana marketplace.
State budget documents released Thursday show the Newsom government is aggressively scaling back that which it expects to accumulate from marijuana tax revenue through June 2020 — a 223-million cut from projections only four months ago.
The low income for the state treasury means that slower-than-expected marijuana sales are hitting a hole in California’s budget.
Illegal pot marketplace still thriving due to low prices
The reduced optimism for retail bud sales comes as shops continue to be undercut by a thriving illegal marketplace, where consumers can avoid taxes which could approach 50% in certain communities.
Related: Cannabis Taxes Explained
Meanwhile, the state regulators have struggled to satisfy with the demand for licensing, and many communities have either banned commercial sales or not set up rules for the legal marketplace to function.
Gov. Gavin Newsom said it was likely to take five to seven years for the legal marketplace to achieve its potential, a point he has made repeatedly.
Local communities need to adapt to new changes
However, he also pointed a finger in local communities that have been immune to legal growing and sales.
“It takes time to go from something old to something new,” Newsom said in Sacramento.
“We understood [some cities and counties] are stubborn in providing access and providing retail locations and that would take even longer than a few other nations, and that’s precisely what’s happening,” he added.
Josh Drayton of the California Cannabis Industry Assn. credited Newsom with carrying a clear-eyed perspective of the slow-emerging marketplace and climbing back tax forecasts accordingly.
“I think this government has been more realistic about the challenges faced by the regulated marketplace,” he said.
A projected windfall of marijuana tax revenue was a significant selling point for legal cannabis in California. Proposition 64, the legislation approved by voters in 2016 that opened the way for legalizing recreational marijuana for adults, outlined a long list of programs that would profit from tax dollars collected from pot sales.
State taxes include a 15% levy on purchases of all cannabis and cannabis products, including medical pot. Local governments are free to include taxes on sales and growing, which has made a confusing patchwork of prices around the state.
The market is growing, just not as fast as once expected
The state projects the 15% cannabis excise tax will pull in $288 million for the year that ends in June, and $359 million the next year. That’s a reduction of $67 million and $156 million, respectively, by the governor’s January budget forecast.
It now seems certain that the state will fall short of earlier projections, even as it expected to collect $1 billion in new tax revenue a year from marijuana within a couple of decades.
According to the state Finance Department, the excise tax projection has been reduced after seeing no increase in the last quarter of 2018. Additionally, the number of places where one can buy legal pot remains restricted.
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