December 5, 2018

Q3 Cannabis Cultivation Taxes in California Show Significant Gains Across All Product Types


The California Department of Tax and Fee Administration (CDTFA) recently published Q3 tax collection data from the state’s cannabis industry. Receipts from the two cannabis-specific state levies to which such businesses are subject – the 15% excise tax on retailers and the cultivation tax – increased compared to Q2’s collections, with receipts from the cultivation tax seeing the largest proportional increase in Q3. State sales taxes paid by cannabis businesses, on the other hand, declined from Q2 to Q3.

Overall, CDTFA reported that tax revenue generated by the cannabis industry totaled $93.1 million, based on Q3 returns received through the end of October. That figure is up by 16.1% compared to Q2’s combined returns of $80.2 million, an amount that was revised to account for amended or late returns, as well as other adjustments.

In Q3, CDTFA collected $12 million from the state cultivation tax. Licensed growers in California pay $9.25 per ounce ($148 per pound) on flower, $2.75 per ounce ($44 per pound) on trim, and $1.29 per ounce ($20.64 per pound) on fresh whole plants that are sold and enter the commercial market. Q3’s receipts from this levy are up by 255% compared to the $4.7 million collected from the state cultivation tax in the prior quarter, indicating that there was a significant uptick in the volume of product traded wholesale that was subject to taxation.

The CDTFA’s Office of Public Affairs recently provided an itemized breakdown of Q3’s cultivation tax receipts to Cannabis Benchmarks, which allowed us to determine the volumes of various product types that were traded and taxed in California’s regulated market.

In Q3 of this year:

  • Over 57,500 pounds of flower were sold wholesale and taxed in California’s licensed cannabis system. That figure is up by almost 270% compared to the just under 21,500 pounds of flower traded wholesale in the Golden State’s young licensed system in Q2 of this year. From Q1 to Q2, tax receipts indicated a roughly 280% increase in the volume of flower traded wholesale and subject to taxation.
  • Over 64,100 pounds of leaves / trim were sold into the commercial market by licensed cultivators. The volume of leaves that were sold and taxed increased by a magnitude of about 285% compared to the over 22,400 pounds of leaves / trim traded wholesale in Q2. From Q1 to Q2, tax collection data showed a roughly 245% expansion in the volume of leaves / trim sold by growers into the regulated market.
  • Over 34,500 pounds of fresh plants were sold by cultivators and taxed in California in Q3. Quarter-over-quarter volume growth slowed for this product type. While the volume of fresh plant material traded wholesale in the state’s licensed market in Q3 is up by almost 220% compared to Q2, trading volumes for this product type swelled by about 700% from Q1 to Q2.

On the retail side, the state’s 15% cannabis excise tax generated $52.4 million in revenue for California in Q3. That figure is up by 23.9% compared to Q2’s receipts of $42.3 million from this levy.

Despite the uptick in collections from California’s cannabis excise tax on retailers, state sales tax collections contracted from Q2 to Q3. In Q3, CDTFA reported that the state sales tax generated $28.7 million in revenue, down from $33.2 million collected from this levy in Q2, a decline of 13.6%.