On Thursday, Gavin Newsom released his first budget as California’s Governor. The budget – totaled at $209 billion including special funds – estimates California’s cannabis excise tax will generate $514 million in revenues for 2019-20. This estimate is significantly lower than the $630 million anticipated in last year’s budget.
Governor Newsom’s budget includes $200 million for statewide enforcement, licensing and oversight over the industry. During the Q&A session, the Governor said that this budget allocation would support expedited licensing to ensure businesses are able to enter the legal market in a timely manner. In addition, the Governor stated that his Administration would be very engaged in cannabis-related policy, including policies that impact licensing at the local level.
The budget also includes $2.9 million in additional funds for California’s tax collection agency to increase tax compliance within the cannabis industry. This should come as welcomed news for licensed businesses that are struggling to compete against non-licensed and compliant entities.
Although the budget anticipates nearly half a billion in revenues, funding for Proposition 64 related programs is put on hold until the May Revise. The budget also acknowledges that the outstanding loan made by the state to establish California’s enforcement and oversight capabilities would be paid first in addition to funding the various programs required by the proposition.
In the coming weeks, the Legislature will review the Governor’s budget in greater detail.
The release of the Governor’s budget sets in motion the Legislature’s detailed review over the coming months. If you have questions related to the 2019-20 budget, or want to learn more about California’s budget process, please contact firstname.lastname@example.org.
Tax revenues collected by the state in the first quarter of FY 2018 are far below January estimates
A bill to temporarily suspend the cannabis cultivation tax and reduce the excise tax passes its second legislative committee
A New York based medical marijuana manufacturer expands its presence into California
The Bureau of Cannabis Control Cannabis Advisory Committee holds its next meeting in Oakland
Cannabis Taxes Collected in Q1 of FY2018 Lower than Expected
On Tuesday, the Legislative Analyst Office (LAO) released a cannabis tax updated that showed California collected $34 million in excise tax in the first quarter of 2018. The Governor’s January budget assumed that the state would collect about $175 million in the first two quarters of 2018, far more than what the state has seen so far. For some in the industry, the lower than expected tax revenues reflects the clumsy rollout of a statewide legal system. Primary among the concerns by many in the industry has been 1) the slow process from reviewing and approving licenses at the state level; 2) the high-cost of complying with state regulations; 3) the widespread prohibition of cannabis business activities in many of the state’s cities and counties and; 4) the high tax burden that incentivizes consumers to buy in the illicit market.
Later today, the Governor will release his May Revise with updated estimates and potential funding and policy changes that may directly impact the industry. I will provide a brief recap of the Governor’s May Revision this week.
Does a Temporary Tax Reduction Have Legs?
On Tuesday, the Assembly Business and Professions Committee voted unanimously to temporarily suspend the cannabis cultivation tax and reduce the excise tax for three years. Supporters of AB 3157 say that California’s high tax rate makes it almost impossible for legal operators to compete against illicit operations that do not pay licensing fees or state and local taxes. Opponents of the bill say that the temporary tax reduction is premature, and the real problem lies at the local level where more than half of the state’s local jurisdictions have refused to allow cannabis business activity. In addition, education and mental health groups believe that the tax reduction will reduce much need funding to support youth drug prevention and equity programs in communities that were impacted the most by the war on drugs.
The Committee did express concern over the state’s ability to repay the outstanding loan of $135 million that was provided to state agencies to fund enforcement and oversight. As written in Proposition 64, taxes collected must be first used to cover he administrative costs of state agencies to implement cannabis laws. The next stop for AB 3157 is the Assembly Appropriations Committee. Stay tuned.
New York is Coming to California
Earlier this week, Etain, a women-owned and managed New York based medical cannabis company announced that they have joined forces with delivery company West Sacramento Management and Daily Green to produce and deliver products beginning this month. As one of ten medical dispensaries in Manhattan, Etain’s expansion into the Golden State follows approval in their home state to offer a water-soluble marijuana powder to medical patients. Approval for the water-soluble solution comes after New York regulators search for ways to jumpstart the state’s medical marijuana program in which growth has stalled since its approval in early 2016. Etain’s move to California is another in a series of investments by non-California businesses and investors. Recently, CannaRoyalty, a Canadian-based cannabis company announced several acquisitions of distribution assets throughout Northern California. The recent moves by both of these companies could signal more to come.
The State’s Cannabis Control Advisory Committee Meets in Oakland
Next Thursday, May 17, the Bureau of Cannabis Control’s Advisory Committee meets in Oakland California to discuss possible action on recommendations to modify the state’s licensing application, manufacturing and microbusiness requirements. The discussion will also include potential pathways on how to proceed with approved recommendations that require statutory change. Click here to review the agenda.
California’s tax collector issues a reminder on how to collect excise tax for retailers.
California’s three licensing agencies release an online search tool to find licensed cannabis business across the state.
Former NFL player partners with a Southern California lab to develop and distribute cannabis products.
Canadian cannabis company acquires California heavyweight distributor, RVR to expand it’s presence in the state.
On Monday, the California Department of Tax and Fee Administration (CDTFA) issued a reminder for retailers on how to collect the cannabis excise tax from their customers. With the first quarter of the fiscal year closing March 31, quarterly return must be filed by April 30. Click here to view the Department’s prepayment and quarterly reporting due dates.
The Administration is eagerly waiting to see how much the state collects in taxes generated from legal cannabis sales. In January, Governor Brown released his constitutionally-mandated budget proposal, and estimates the state will generate approximately $600 million in new cannabis taxes in FY 2018-19. When the Legislative Analyst Office (LAO) analyzed the fiscal impacts of Proposition 64, they conservatively estimated that state and local governments would collection in the high hundreds of millions of dollars to over a $1 billion in annual tax revenue. The state will have a clearer picture when the Governor’s May Revision is released in mid-April. Stay tuned.
Where are all the licensed cannabis businesses in California?
On Wednesday, California’s Bureau of Cannabis Control (BCC) announced an online tool to find state licensed cannabis businesses. According to the Bureau, California’s three licensing agencies (BCC, Department of Food and Agriculture, and Department of Public Health) have issued a combined 5,300+ licenses to date. One of the major complaints among many in the industry is that the state has been slow to grant licenses for major parts of the supply chain creating a major bottle neck. It now appears that the state is making progress on that front. The Bureau also released a list of licensed event organizer entities. Below are the links to the search tools for the three agencies and the list of event organizers:
Former NFL superstar launches cannabis business in Southern California
Former NFL star and Heisman Trophy winner, Ricky Williams has teamed up with a laboratory in El Cajon, California to develop herbal-based wellness products to be distributed throughout Southern California. Williams spent over a decade of his life as a professional football player, and knows the constant stream of aches, pains, and injuries that come from battering his opponents on Sunday. Williams was also a controversial figure in the NFL for his early embrace of cannabis as alternative pain relieving method to traditional pain killers.
Williams’ business, Real Wellness offers a unique line of products that combines CBD and THC with herbal extracts such as arnica, lavender, and turmeric. The news of Williams’ entry into the cannabis market follows recent news that fellow NFL player and Hall of Famer, Joe Montana has also benefitted from the pain relieving properties in cannabis. In is post-professional football life, Montana has been a vocal advocate in support of the pain reducing properties of cannabis, and has invested in cannabis technology company, Herb, to educate the public and athletes on cannabis.
Studies have shown that professional football players are four times more likely to abuse painkiller medication as average Americans. Recently, the NFL Commission, Roger Goodell made comments that while the league does not support recreational use, the league is open to allowing players to use cannabis for pain management. The league is currently studying the issue. More to be seen.
Canadian cannabis company expands in California
On Tuesday, the Canadian cannabis company, CannaRoyalty announced that they had acquired West Sacramento based distributor, River Distribution (RVR). The move consolidates RVR with Alta Supply, an Oakland based distributor creating what is poised to be the leading distribution company in Northern California, if not the state. According to CannaRoyalty, Alta Supply and River Distribution generated a combined ~$30 million in revenues in fiscal year 2017. The acquisition of both companies by a Canadian firm is part of a larger investment by Canadian-based companies investing in California’s legal market. What can we expect next from the Canadians? We will see.
The deal included increased spending for the military, space exploration, and opioid addiction and research programs. The spending plan also included a provision, commonly known as the Rohrabacher-Blumenauer Amendment (RBA) that prohibits the U.S. Department of Justice from using federal funds to prosecute medical marijuana businesses in states that have medical cannabis laws.
With the repeal of the “Cole Memo” by Attorney Jeff Sessions in January, the RBA stands as one of the last protections state’s have against federal interference in their medical marijuana markets. Unfortunately, the RBA is only temporary and does not address states that have legalized recreational adult-use.
Several attempts to settle the issue once and for all have been introduced with bi-partisan support, but have failed each time in the House of Representatives. Rep. Pete Sessions (R-TX), Chairman of the House Rules Committee, has killed a number of bills that would bring the federal policy in line with states that have adopted marijuana policies.
Under the current Administration and with Republican control of Congress, it seems unlikely that a permanent federal solution is near. However, the industry can breathe a slight breath of relief between now and September.