The inexorable march toward legalized marijuana for recreational use continues to gather momentum, fueling social change, economic growth, and, often overlooked, financial windfalls for state governments.
California, the world’s largest cannabis market, was among the first states to make recreational use legal and, given its size, demonstrates the powerful impact the industry has on government coffers.
The state collected $236.4 million from the cannabis industry in the fourth quarter of 2020 alone. This included $123.4 million in excise tax, $31.6 million in cultivation tax, and $81.4 million in sales tax, according to the California Department of Tax and Fee Administration. This does not include taxes paid to local jurisdictions within the state.
Importantly, these are only preliminary figures that are likely to grow when tax returns are finalized. Because of the pandemic, most cannabis companies were provided a three-month extension – to April 30 — to file tax returns with CDTFA.
Between the start of 2018 and the close of 2020, California generated $2.07 billion in cannabis tax revenue – a staggering sum for an emerging industry with a long runway for growth. It was nearly two-thirds of the total sales tax generated in South Dakota during the same period – a much smaller state, of course, but it gives you a sense of the industry’s revenue heft.
Lingering illicit market influence clouds the industry’s full potential, but to generate billions of dollars in tax revenue in just a few years speaks for itself.
A study by consulting firm ICF International concluded that, in California, the cannabis sector has generated more than 80,000 jobs in the last five years – either directly by cannabis companies or by employers that work in partnership with the industry. It also estimated that labor income in the state has increased by more than $3.5 billion since cannabis was legalized.
Published: March 12, 2021
Founder & Interim Editor of L.A. Cannabis News