Cannabis revenue coming up short

The California cannabis conundrum: A lot more weed, a lot less money.

Since Proposition 64 took effect earlier this year, the cannabis industry has raked in nearly $135 million of revenue for the state through sales taxes, not including local jurisdiction taxes. Even with increased sales each quarter, some officials are calling the revenue “substantially below projections.”

With banking and security concerns due to a lack of federal law-enforcement protection, will revenues continue to increase?

California lawmakers rejected dozens of bills facing deadline in August, including Senate Bill 930, which would have allowed the state to license private banks to handle the revenue.

It’s too early to tell, said H.D. Palmer, spokesman the state Department of Finance.

“Revenue estimates for a new tax on a newly created market are subject to a level of uncertainty,” Palmer said.

For fiscal year 2017-18, which covers six months of sales, total state excise taxes—excluding sales taxes—collected from cannabis sales were $81.6 million, $103.5 million below the budgeted projections of $185.1 million. The second quarter of legal sales increased to $48 million from $33.6 million in the first quarter, or 43 percent, according to the Department of Finance.

Joe Devlin, chief of cannabis policy and enforcement for the City of Sacramento, said one of the reasons the industry is gaining such momentum is that it’s already an existing industry. “We are trying to regulate it and get through a gate to follow a set of laws and rules,” Devlin said during an interview on Politics on Tap for Capitol Weekly.

He said one of the roadblocks is that the state has a “cash problem.”

California lawmakers rejected dozens of bills facing deadline in August, including Senate Bill 930, which would have allowed the state to license private banks to handle the revenue. A legislative analysis said the bill faced “significant obstacles,” including no protection from federal law enforcement.

A once barren lot in Cathedral City is being transformed into the future home of Sunniva Campus, a 489,000 square foot medical cannabis cultivation and production facility.

“The whole industry has limited access to banking and that creates huge challenges. It’s a huge security risk. It’s ultimately why we need federal participation and partnership in the regulation of cannabis,” Devlin said.

A patchwork of 402 cities and 58 counties across the state authorize commercial cannabis activities, including Cathedral City in Riverside County.

A once barren lot in Cathedral City is being transformed into the future home of Sunniva Campus, a 489,000 square foot medical cannabis cultivation and production facility.

Sunniva, a Canada-based company, is expecting to generate $5 million or more every year in city cannabis tax revenue once fully operational.

The campus received unanimous approval for the project in 2017. According to Sunniva vice president Rob Knowles, plants are expected to be housed later this year and harvested early next year.

Currently, the state has a mix of 417 active medical and recreational (or adult-use) marijuana business licenses.

“California represents a very large existing market with exciting growth opportunities in all facets of the industry,” Knowles said.

Knowles said the other draw to California is due to Canada offering less potential for companies to expand in the marijuana market.

Knowles said Sunniva plans to eventually launch branded product lines including vaporizers, flowers to vaporize and beverages.

Alex Traverso, assistant chief of communications for the Bureau of Cannabis Control, said the Sunniva project is a great indication that the industry can evolve quickly.

“There are a lot of different business models taking shape. Once we see some of the dust settle, businesses will be getting used to regulations and figuring out where the best area is to develop is,” Traverso said.

Currently, the state has a mix of 417 active medical and recreational (or adult-use) marijuana business licenses. Just over 30 of those are in the city of Sacramento, 70 are in Los Angeles and18 are in the city of San Diego, the Bureau of Cannabis Control reports.

Some officials say these numbers may not be a representation of the total number of marijuana businesses, because some are still operating illegally. The California Growers Association estimates there are more than 50,000 cannabis growers in California, and just over 6 percent have moved to the legal market.

Amy Jenkins, senior policy director of California Cannabis Industry Association, said new laws create a larger elicit market.

“Those businesses are not going away. They are operating underground, or they’re operating in the light, and there’s no enforcement,” Jenkins said.