California generated $635 million in cannabis tax revenue in 2019, thanks to Proposition 64. Passed in 2016, Prop 64, also known as the Control, Regulate and Tax Adult Use of Marijuana Act, legalized the use of marijuana for those over the age of 21, created laws, and assessed taxes to regulate the cultivation, distribution, sale, and use of marijuana. This tax revenue is allocated for public health, public safety and the environment. And there’s more: on January 15, California Governor Gavin Newsom made public a commitment of cannabis tax revenue to fund social allocations to the tune of $332.8 million for 2020-2021.
Thanks to the California cannabis industry, the state is awash in hundreds of millions of dollars in new tax revenue. But are the taxes too much for a newly legal industry? The Legislative Analyst’s Office indicates that the state’s cannabis taxes run in the middle of the range when compared to other states where cannabis is legal. In the end, the state expects to generate $1 billion in annual tax revenue once the industry reaches maturity.
Here’s the breakdown on how that tax revenue is generated:
- State excise tax on retail sales: 15%
- Cultivation tax: This was originally $9.25/ounce. It is now $9.65/ounce
- State sales tax: 7.25% on all retail items (this includes cannabis)
- Automatic local sales tax up to 1%
- Local cannabis business taxes: Rate varies from city to city from 0% to 15%
Here’s how that tax revenue is allocated, after expenses:
- Public health: 60%
- Public safety: 20%
- Environment: 20%
Allocation: Public Health – $140.8 million
Public health, in this case, focuses on those in the beginning stages of their life — early childhood. The state will spend $140.8 million in cannabis taxes on child care vouchers for 11,000 children in low-income families. These vouchers pay for child care, and that enables their working low-income parents to keep their jobs.
Funding also goes to child care slots at the Department of Education Alternative Payment Program. To qualify, families must make less than 70% of the state median income, and parents must either be in school or working to access this service. The child care slots are a component of a subsidized child care program to help California families make ends meet. Legal cannabis taxes fund all in all close to one in seven childcare and preschool subsidized vouchers.
Allocation: Public Safety – $44.8 million
The Board of State and Community Corrections (BSCC) receive cannabis taxes per Prop 64. Then they grant those funds to local governments that assist with law enforcement, fire protection, and other local programs.
The funds in this allocation are regulated per Revenue and Taxation Code, Section 34019, subd. (f)(3)(C). This money ultimately goes to local police officers, firefighters and others involved in California’s public safety. The best part of this allocation? The public safety grants go specifically to cities and counties that allow licensed cannabis dispensaries. Counties and cities that have banned the cultivation or retail sales of licensed cannabis are not eligible for these grants.
Allocation: Environment – $39.9 million
The Environmental Restoration and Protection Account, created by Prop 64, is managed by the California Department of Fish and Wildlife (CDFW). They’ve used the cannabis tax funds for the eradication of illegal marijuana grow sites, and the resulting environmental clean-up, including forest and trail restoration. The illegal growers that trespass on private and public lands leave a wide swath of destruction. This environmental ruination includes littering, heavy fertilizer and pesticide use, poaching animals and using chemicals to kill rodents that threaten their illicit cultivation sites.
The illicit cannabis market remains active in California. It ranks as the number one state of illegal cannabis production in the U.S. In 2018, the CDFW carried out close to 400 missions on illegal grow sites on both public and private land, performed hundreds of inspections at cannabis sites, issued almost 300 Notice of Violation letters (NOVs), and assisted with over 160 search warrants.