Cali Cannabis Tax Revenue Drops in 2022

According to the Northbay Business Journal, a sign of tension between the industry and regulators and the overall market, California saw its first-quarter tax marijuana tax revenues fall when compared to the same period of 2021.

Solful director of marketing Lisa Weir, left, chief executive officer Eli Melrod, purchasing manager Noah Melrod, and chief marketing revenue officer Summer Erickson have a discussion at the new Solful cannabis dispensary in Santa Rosa on Thursday, April 14, 2022.  (Christopher Chung/ The Press Democrat)
Image from Northbay Business Journal/Christopher Chung/The Press Democrat

The total of 2022’s first-quarter returns was $293.5 million for the time that ended on May 17 (while accounting for late returns for the time period that ended March 31) according to the California Department of Tax and Fee Administration (CDTFA). The $293.5 million figure contrasts with $316.5 million collected for the fourth quarter of 2021, which was a 7 percent decrease.

In a breakdown of the $293.5 million in tax revenue, the amount from excise tax totaled $156.3 million, and sales taxes totaled $105.5 million. Both are due when goods are sold.

The tax imposed on growers earned $32.6 million. The figures also showed declines from the beginning and final quarters in 2021, the tax department of the state reported in May.

Since the state started taxing cannabis in the month of January, 2018 Tax revenue so far has amounted to $3.76 billion.

This became a source of contention among cannabis producers in the last quarter of 2018 when tax rates were increased during a time when the industry was confronted with unprecedented challenges. The overproduction of cannabis particularly as the mega-farms grew and grew, resulted in a drop in wholesale prices. In the meantime, the illegal market grew by undercutting legal business Industry insiders claim. The possibility of market collapse triggered the tax-payer to revolt which saw about half of the farmers opting to leave their fields until the conditions improve.

“We’re not surprised by this (tax revenue drop) because right now the legal industry is so heavily taxed and regulated it makes it impossible to be profitable in this market with this tax structure,” explained Kaleena Quarles, the general manager of Abide. Abide dispensary, located in Napa.

In the following years, new obstacles appeared to impose a huge economic burden on the market.

“The one thing we’re seeing is more retail demand for cannabis remains strong, but the transactional value is less,” said Eli Melrod said, CEO of Solful, which runs dispensaries across Sonoma County. He believes that’s a sign customers are responding to the inflationary pressures by cutting back.

“They’re paying more for other things, and their wallets are tighter,” Melrod added.

“It’s an extremely challenging market right today. Many brands offer excellent products, but the market for illicit products is well,” said Napa Valley Cannabis Association President Stephanie Honig, also of Honig Vineyard & Winery in Rutherford. “A lot more needs to be done.”

Louis Levey is the Content Success Manager and Founder at No Strings Content. He's passionate about helping cannabis businesses use content to attract, educate, and convert audiences. His hometown is Boca Raton, Florida, but he currently lives and works remotely in Chiang Mai, Thailand.

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