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California: Pot Tax Revenues Not So High; Black Market Flourishes

January 12, 2019

Tax revenues in California gleaned from legal pot sales are not as high as expected, and one expert claims that burdensome taxes on the growing pot industry are “driving consumers” to the black market where pot is cheap.

According to a report by the Associated Press, projected revenues from markets opened up after last year’s state-wide legalization of marijuana are “roughly half of what was once expected.” The AP reports Gov. Gavin Newsom’s new budget expects about $355 million dollars in “marijuana excise taxes” by mid-2019.

The report states:

“Industry experts say the diminished tax income reflects a somber reality: Most consumers are continuing to purchase pot in the illegal marketplace, where they avoid taxes that can near 50 percent in some communities.”

In fact, the AP reports that some industry experts estimate that 80 percent of users are still buying pot products on the black market.

Speaking to the AP, Josh Drayton of the California Cannibis Industry Association said California lawmakers were “too optimistic about how the implementation of legalization was going to work” and that “legal [marijuana] businesses need a break from hefty taxes that are driving consumers to the illicit economy.”

In California, taxes can be levied on pot businesses both on the local and state level. With that formula, taxes “can near 50 percent in some communities.”As a result, legislators and regulators are looking at whether local governments are “gouging the industry,” the AP reports. 

The AP further reports that Gov. Newsom “recommended a sharp increase in spending for regulatory programs” in the wake of the legalization of pot, with “just over $200 million” for the first year for such programs.

Other expenses include $2.9 million to “help chase down tax cheats” who circumvent the new pot tax rules, and $14 million for “resentencing of thousands of drug offenders whose offenses are no longer crimes” since pot’s legalization, the AP reports.