September 5, 2018

Tax Collection Figures Up 21.8% in Q2


The California Department of Tax and Fee Administration (CDTFA) recently released tax collection figures from sales of cannabis within the state’s licensed system during Q2. Overall, tax receipts were up from Q1, with collections from all levies totaling over $74.2 million, a quarter-over-quarter increase of 21.8% compared to Q1’s receipts of $60.9 million.

Q2 collections from the state’s 15% excise tax on retailers amounted to just under $43.5 million, up by over 35% compared to Q1’s receipts of about $32 million from the same levy. Based on those figures, it appears that retail demand increased significantly in Q2 compared to the prior quarter, with the progressive opening of more storefronts and delivery services through the first months of this year likely playing a role in the rise in sales. According to Green Market Report, there were 331 retailers able to serve both the adult-use and medical markets as of the end of June, along with 21 licensed to sell only to the former and 64 medical-only dispensaries, for a total of 416 retail outlets statewide.

Revenue from California’s cultivation tax also experienced a notable quarter-over-quarter jump. California levies a flat tax by weight on the produce of cannabis farmers. Flower is taxed at a rate of $9.25 per ounce (or $148 per pound), trim is subject to a levy of $2.75 per ounce ($44 per pound), and fresh whole plants are taxed at a rate of $1.29 per ounce ($20.64 per pound). In Q1 of this year, only $1.6 million was collected from the state’s cultivation tax, with figures provided by CDTFA to Cannabis Benchmarks stating that a bit over 7,700 pounds of flower, almost 9,100 pounds of trim, and over 2,250 pounds of wet whole plants were traded wholesale in California’s licensed system in the first quarter of this year.

Q2’s cultivation tax receipts totaled over $4.48 million, according to CDTFA, an amount that is nearly three times the revenue collected from this levy in the prior quarter. Still, Q2’s California cultivation tax receipts are lower than recent monthly tax collection figures from Colorado’s 15% excise tax on only adult-use growers, which have brought in slightly over $5 million in revenue in recent months. Currently, Colorado’s tax on adult-use cultivators is levied on the contract price of a deal when there is a transaction between two unaffiliated parties, while a grower transferring flower to an associated retail or processing operation will pay taxes of $126.90 per pound, based on current Average Market Rates (AMRs) set by the state Department of Revenue.

Clearly, California’s cultivation tax receipts are relatively low, despite the strong quarter-over-quarter growth documented in Q2. This is likely due in part to the ability of unlicensed production to make its way into California’s licensed system, an aspect of the market attested to by numerous operators over the course of this year. California officials have yet to implement a plant and inventory tracking system statewide, with such record keeping performed by individual businesses since the opening of the regulated market on January 1st. As a result, it is possible for retailers to stock up on inventory that has not passed through a licensed distributor and been subject to taxation from the state.