In Y 2018, 25 years after approving medical marijuana, Californians will be able to consume it for recreational, and the localities that have reaped the most from legal marijuana sales may in for a billion-dollar windfall.
Los Angeles, San Francisco, and Alameda counties collected the most in sales taxes from medical marijuana dispensaries in 2016, according to the state Board of Equalization.
The tax take does not 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 an analyst at Fitch Ratings Ltd.
But, because of the uncertainties around marijuana, which is still illegal under federal law, the estimates vary on the cash that could be generated in California.
State and local tax revenue could hit more than $1-B annually from marijuana by the mid-2020;s, according to the nonpartisan Legislative Analyst’s Office.
That would be more than a 10X increase from Y 2016 when medical marijuana dispensaries generated about $82-M in sales taxes alone, according to the Board of Equalization.
Arcview Market Research, an unit of a California marijuana investment firm the Arcview Group, projects legal sales, which were at $1.8-B last year, will hit $5.8-B by Y 2021.
Nationally, legal sales of cannabis products could reach $24.1-B in Y 2025, up from $6.6-B in Y 2016, according to a recent report from a firm that tracks the industry.
Under the measure approved by California voters in November 2016, 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% 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 public health effects of the drug that may occur.
Those new taxes may generate about $440-M in FY 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 said.
Overall, many of the marijuana industry companies are trading huge speculative multiples, as in any speculative issue, prudence is the watchword. As the US DOJ under The Trump Administration could easily move to enforce the law, driving the stock prices to Zeros, and the company into consolidation at best, bankruptcy, out of business at worst, huge shareholder losses to the benefit of Big Ag and Big Pharma.
I am one of the few analysts who have followed and written about this nascent industry for over 10 years, and have see a lot of money made and a lot of money lost, it is not firmly established yet, and we who know, understand that it is not to the liking of The Trump Administration.
And I have seen the federal government come into the “California Legal” business and personal lives of many and destroy them.
The Big Q: Why?
The Big A: Because the public health issues, for which no numbers are ever presented Vs the tax benefits, are a huge question for the Administration.
Again, prudence is the watchword,
Stay tuned…
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