California Collected $242 Million in Weed Tax Revenue in the Last 3 Months Alone
The Golden State is still making bank on weed sales, even though it recently ended its burdensome cultivation tax.
Published on November 21, 2022

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California raked in more than $242 million in legal weed tax revenue over the past three months, according to a new report by the state Department of Tax and Fee Administration. 

Between mid-August and mid-November, tax officials collected $128.4 million in cannabis excise taxes and $113.6 in sales tax from legal weed businesses. These totals only account for businesses that paid their bills on time and do not include outstanding returns. Since legal sales began in January 2018, the state has collected a record $4.4 billion in legal weed tax revenue, including $2.2 in excise tax and $1.7 billion in sales tax.

As impressive as this quarter's total tax haul is, it's actually the smallest amount of weed revenue that the state has collected in over two years. Quarterly tax collections have dropped gradually since peaking at $361 million last summer. Revenue has been slipping by around $15 million a month, eventually dipping just below $300 million in the second quarter of 2022. This last quarter's revenue plunged to $242 million, though nearly $58 million lower than the prior quarter. 

The primary reason for this sudden drop is the state's recent decision to do away with its highly unpopular cultivation tax. California currently has some of the most extreme taxes of any adult-use state, and these high costs are making it very difficult for legal businesses to compete with tax-free black market bud. In an attempt to ease legal businesses' burden, lawmakers passed a bill this summer that officially put an end to the state cultivation tax.

Before the new law came into effect this quarter, legal weed growers had to cough up $10.08 for every ounce of dried flower, $3 for every ounce of dried leaves, and $1.41 for every ounce of raw plant material.  These fees were, of course, largely passed onto the consumer, which has helped cement California's reputation as the most expensive legal pot in the country. Over the past two years, the state has been collecting an average of $40 million in cultivation tax revenue a month. Since sales began in 2018, tax officials collected just over $500 million in cultivation taxes. 

The removal of the cultivation tax is not the only reason that this month's total haul was lower than usual, though. State-licensed retailers only sold $1.27 billion worth of legal weed this quarter, the lowest total seen since the second quarter of 2020. But even with this sales slump, the Golden State has still sold more than $4 billion worth of legal bud already this year, vastly outselling every other adult-use state in the country.

The quarterly sales dip suggests that nixing the cultivation tax alone will not solve the state's black market problem. Industry stakeholders have long argued that the state also needs to chill on its excessive excise tax. One recent study suggested that California could more than double its overall pot tax revenues, but only if regulators removed the cultivation tax and reduced retail tax rates. 

The lack of access to legal pot shops is also hurting sales and, in turn, reducing the state's potential tax revenue. Over 80% of California municipalities originally opted out of the legal weed industry, leaving the state with only one weed store per 29,292 residents – far fewer than any other adult-use state. Fortunately, a dozen municipalities just voted to opt in this month, which will pave the way for as many as 70 additional legal retail outlets.

Chris Moore
Chris Moore is a New York-based writer who has written for Mass Appeal while also mixing records and producing electronic music.
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