Despite disappointing first-quarter cannabis tax revenue numbers, Gov. Jerry Brown’s revised state budget proposal actually increases the amount of money California is expected to make from the first six months of legal marijuana and allocates $133 million to regulate the massive industry.
In his January draft budget, Brown predicted California would take in $175 million in cannabis cultivation and retail taxes by June 30. In his May budget revision released Friday morning, Brown upgraded that anticipated tax revenue to $185 million.
The new budget does slightly reduce the marijuana tax earnings expected in 2018-19 fiscal year, dropping the estimate from $643 million to a revised $630 million.
California Finance Director Michael Cohen said during a press conference Friday in Sacramento that there’s a lot of uncertainty surrounding cannabis revenue projections. But he said the estimates for a substantial increase in taxes in coming months is based largely on what happened in states like Colorado and Washington after they launched recreational sales in 2014.
“It’s going to show a ramp-up,” Cohen said. “So it’s not surprising that the revenues to date are starting small.”
The revised budget also allocates another $133.3 million in the coming year for cannabis-related activities, including processing licenses, enforcement, laboratory services, information technology, quality assurance and environmental protection. Those costs are funded by tax revenues, business licensing fees and another general fund loan of up to $59 million.
California launched legal recreational marijuana sales and began licensing all other industry businesses for the first time on Jan. 1 under rules set up by Proposition 64, approved by 57 percent of voters in November 2016. Advocates and economists predicted then that the state would take in around $1 billion each year in marijuana tax revenue once the regulated market was fully up and running.
But news broke earlier this week that cannabis tax revenue totaled just $33.6 million from Jan. 1 through March 31, which put the state significantly off-pace to reach six-month or end-of-year projections.
Experts blame the shortfall on California’s black market, which they say is still thriving thanks to high taxes on legal weed and difficulty in getting business licenses at the local level.
To help curb that problem, the new budget dedicates $14 million to the Department of Justice to establish five new teams to investigate illegal cannabis activity, with a focus on large operations, tax evasion and businesses harming the environment.
The reduced revenue means it will likely take longer to repay a $120 million general fund loan used to launch California’s cannabis licensing and regulation programs. And it may mean less money than expected to a range of causes called out in Prop. 64.
But the budget does dedicate $10 million to local health departments and community-based nonprofits to support substance use disorder treatment, job placement and legal services. And it offers $2 million to UC San Diego to research cannabis as medicine; $10 million to other state universities to research impacts of Prop. 64; and $3 million to the California Highway Patrol to establish better ways to detect drivers under the influence of marijuana.
The downgraded marijuana revenue projections won’t have a significant impact on California’s financial picture, with marijuana funds a tiny fraction of the $199 billion annual budget for the fifth-largest economy in the world. And Brown’s revised May budget shows other state tax revenue should give the state an $8.8 billion surplus — $3 billion more than predicted in the January budget.
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