by Romy Varghese
Twenty years after approving medical marijuana, Californians come
2018 will be able to consume it for recreational purposes, too, and the
localities that have reaped the most from legal cannabis sales may be
best positioned for what could be a billion-dollar windfall.
Los Angeles, San Francisco, and Alameda counties collected the most in sales taxes from medical marijuana dispensaries last year, according to the state Board of Equalization. The tally doesn’t include business taxes that cities assess.
As
with other products subject to the sales tax, the bulk of proceeds goes
to the state’s general fund, with cities and counties also taking cuts
for their budgets. Under the expanded legalization, the state could reap
hundreds of millions from a new excise tax while localities can assess
their own fees and levies to boost their general funds.
The prospect of higher revenue is a positive for California
municipalities that face limits on raising property taxes and must seek
voter approval on other levies, said Stephen Walsh, an analyst at Fitch Ratings Ltd.
"We recognize that for local governments that have few ways of increasing revenue, pretty much anything is welcome," Walsh said.
Because
of the uncertainties around pot -- which is still illegal under federal
law -- estimates vary on the cash that could be generated in
California. State and local tax revenue could hit more than $1 billion
annually from marijuana by the mid-2020s, according to the nonpartisan Legislative Analyst’s Office.
That would be more than a ten-fold increase from 2016 when
medical marijuana dispensaries generated about $82 million in sales
taxes alone, according to the Board of Equalization.
Tom Adams,
editor-in-chief of Arcview Market Research, an arm of Oakland-based
cannabis investment firm the Arcview Group, projects legal sales --
which he pegged at $1.8 billion last year -- will hit $5.8 billion by
2021.
Nationally, legal sales of cannabis products could reach $24.1 billion in 2025, up from $6.6 billion in 2016, according to a report from New Frontier Data and Viridian Capital Advisors, which also track the industry.
Under the measure approved by California voters in November,
with certain sales of medical pot becoming exempt from sales
tax, recreational cannabis would fall under it as of January.
Separately, every marijuana product will carry
an additional 15 percent excise tax and growers will pay levies-- all
of which would go into the state fund to cover costs of programs for
substance abuse and other adverse effects of pot that may occur. Those
new taxes may generate about $440 million in fiscal 2019, according to
the analyst’s office.
Rating upgrades are unlikely given the nascent state of legalization, analysts from Fitch and S&P Global Ratings said. In the voter information for the city of Los Angeles’ successful ballot measure
in March that levies a gross receipts tax on cannabis, officials said
that the impact "cannot be currently quantified" for the general fund.
"Nobody really knows the size of this market yet," S&P analyst Sarah Sullivant said.
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