July 4, 2019

Recreational Marijuana in California: The Prop 64 Promoted $1 Billion in New Tax Revenue is Just a Bunch of Smoke

This post, originally published about a hear and a half ago, continues to be one of the most visited posts on my blog.  And ya know what?!  You guessed it!  The topic still is pertinent and holds true today.

In May of this year, Gov. Gavin Newsom sharply scaled back fiscal year marijuana tax revenues that he had forecasted only 4 months prior in January.  From $355 million forecasted in January, to a much reduced $288 million forecasted in May.  Yep, that's it!  And that's nowhere near the $1 billion annual marijuana tax revenue projections that was used to sell this fake bill of goods to California voters.

Just more California Politics at Its Finest!

~~  Originally Posted February 22, 2018  ~~

Legalized Recreational Marijuana in California.

Just how is that all working out for the Golden State?

When California voters approved Prop 64 in November 2016, legalizing recreational marijuana sales in California, the pro-pot pushers used increased tax revenue as a huge marketing tool.

Just how much new tax revenue?

Well, the pro-pot promoters typically touted that taxes and licensing fees from the sale of recreational pot were expected to generate an additional $1 billion in annual  revenue for California state and local governments.

$ 1 Billion Bucks Baby 

Heck, here is a political mailer from the Pro Prop 64 Pot Industry promoting an extra $1 billion in revenue a year:

California Pot Promoter's Political Mailer Promising $1 Billion Annually in New (Tax and Licensing) Revenue from Prop 64, Which Legalized Recreational Marijuana Sales in California.

Sounds like a financial windfall, right?  Na, I didn't buy this expected revenue windfall back in 2016, and I don't by it now.  As I believed in 2016 and continue to believe today, the estimated $1 billion in annual revenue from taxes and licensing fees from legalized recreational marijuana sales in California was ... and is ... just a bunch of smoke.  No pun intended.

And why?  So many reasons why; take your pick from a sample.

  • The cost of testing, licensing, and taxes is estimated to triple ... triple ... the cost of marijuana purchased at a licensed brick and mortar store, compared to today's street in California.  Why is a pot smoker/user going to pay a 300% premium to purchase their weed at a licensed store, when the person can get their fix for 1/3 the price down the steet from their buddy the black market marijuana seller?
  • Most chemicals and pesticides will be banned from use in California's legal and licensed recreational marijuana.  This will make marijuana more difficult to grow; plants will take longer to grow and will likely not bare as much weed as is common in today's chemical and pesticide-laced weed grows.  Why would marijuana growers change their growing habits to make their business far less profitable, or perhaps unprofitable?
  • Marijuana remains illegal on the federal level.  Most banks will therefore not provide services to marijuana-related businesses, including those deemed legal under California Prop 64.
  • While recreational marijuana sales became legal in California on January 1, 2018, the licensing process is lengthy and complex.  Moreover, county and local municipalities do not have to follow Prop 64, and can ban legalized recreational marijuana sales, or otherwise greatly restrict pot grows and legal sales.  And this is exactly what has happened.
  • And uh, does anyone ... anyone ... think the large cartel grows, most hidden on public lands, are going to comply with any new marijuana laws?  Or that the smaller growers using stolen electricity and stolen water for their indoor grows are going to become legit and comply with said new laws?

So where are we today?  Glad you asked! Not even a drop in the bucket toward the touted grand $1 billion in new tax and licensing revenue.  According to a report recently published by the California marijuana group California Growers Association, fewer than 1% of California's estimated 68,120 marijuana growers were now legally licensed under California's recreational marijuana Prop 64 law.

More specifically, as of February 7, 2018, only 534 of the 68,120 marijuana growers were legally licensed.  That's a paltry 0.68%.  You can download the report here.

Using Current Statistics, Here is What California can Realistically Expect for New Annual Revenue from Legal Recreational Marijuana Sales

And Just What is the Estimated State Budget for Overseeing Legal Recreational Marijuana Activities, Anyway?

As I said, any dream of $1 billion in extra tax and licensing revenue from this statewide marijuana experiment in nothing but smoke.  No pun intended.  If we use the 0.68% to arrive at expected new tax and licensing revenue, that equates to $6,800,000 in new annual revenue.

And just how does this teeny tiny bit of new revenue compare to the annual cost of the state regulating legalized marijuana through the newly formed California Bureau of Cannabis Control?

Glad you asked!  The Governor’s May 2017 Budgte Revision included 201 state employee positions and a $43.2 million budget in fiscal 2017‑18 from various funds to conduct cannabis regulation-related activities.  These resources are provided across seven state departments.

So you see, the realistic $6,8000,000 in new annual revenue won't even begin to cover the current estimated $43,200,000 annual state regulatory budget.  And the monetary figures are even worse than what I have provided, as the estimated $6,800,000 revenue does not all go to the State, but rather is share with State and Local taxing authorities in California.

Granted, I don't smoke ... anything.  Never have, never will.  But that's not the point.  The point is that California voters are consistently mislead by proponents of ballot measures; and California elections are nearly always loaded with ballot measures.  Don't simply believe what you hear, or read on the Internet or in proponent propaganda.  Do your own research (which often takes very little time) before forming your decisions on voting issues.

About Mary Rae Fouts, EA

Mary Rae Fouts, EA provides tax, insurance consulting, and expert witness services to clients who have technical or complex concerns.  For more information visit FoutsFinancialGroup.com.

Mary Rae Fouts

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