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California’s Cannabis Tax Yields Surge, Overtaking Washington As Top Revenue Generator

October 8, 2019

California’s cannabis tax revenue overtook Washington’s for the first time in the first half of this year, according to Impact Databank. California collected $265.1 million in the six months ending in June, up 88.7% from the same period last year. Washington, formerly the top revenue generator, brought in $183.5 million in the six-month period. In contrast to California’s exponential growth rate, Washington’s revenue was up only 1.3% compared to the first half of 2018.

The development illustrates the tremendous speed with which California’s legal market has caught up to states like Washington and Colorado that had a four-year head start. Both Washington and Colorado began sales in 2014 following votes in 2012 to legalize; California voted for legalization in 2016 and sales began January 1, 2018.

Cannabis spending in California has trended upward at a rapid rate. Due to the state’s medical program dating back to 1996, over 6,000 medical dispensaries were in operation at the time of recreational legalization. These retailers weren’t grandfathered into the new marketplace, however, and the state issued fewer than 600 retail licenses through 2018, resulting in a dramatic decrease in cannabis retail statewide. By comparison, Colorado has approximately 550 recreational shops with a population one-sixth the size of California’s. Nonetheless, Californians spent $2.51 billion in the regulated market in 2018, eclipsing second-place Colorado’s $1.55 billion by 60%. In fact, California overtook Colorado in monthly sales in February 2018, one month after the market came into existence. Washington had approximately $1 billion in sales last year.

Despite California approximately doubling Washington’s sales, Washington’s tax revenue of $370.3 million beat out California’s $353.2 million in 2018. This was due to Washington’s aggressive 37% excise tax, which is more than twice California’s 15% excise tax, though California augments that with flat rate cultivation fees.

California, already the most valuable market in the world, is now also the most lucrative on a tax revenue basis despite numerous municipalities voting to ban cannabis retail. It serves as a reminder that the California market is far from its full potential. Sales will continue to grow as more shops open and law enforcement shuts down unlicensed dispensaries and other illicit channels, which still divert billions of dollars of cannabis spending. Washington, by contrast, is a mature market not likely to change much at this point barring a new wave of licensing—retail is currently capped at 556 outlets.—Danny Sullivan

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