California on track to collect $1 billion in cannabis taxes in 2020

California is on pace to collect $1 billion in taxes from licensed cannabis sales in 2020, even amid challenges of the coronavirus pandemic and a still thriving black market for it, Gov. Gavin Newsom’s senior adviser on cannabis business said Thursday.

The rate of legal sales has increased this year, and in the third quarter the state fetched $306.7 million in excise, cultivation and sales taxes, bringing the overall year-to-date total to $777 million, said Nicole Elliot, who delivered the keynote during a virtual regional cannabis conference sponsored by the North Bay Business Journal.

“This puts the industry on track to generate closer to $1 billion this year, which is quite impressive,” Elliot said.

Since marijuana became legal for recreational use on Jan. 1, 2018, it took California about two years to collect the first $1 billion in taxes on the plant, a figure that does not include the taxes assessed by cities or counties, including Sonoma County, in the Golden State. The large majority of cannabis taxes are collected by the state; it could not be determined Thursday how much this county has collected so far this year.

Going into this year, the Bureau of Cannabis Control estimated California is expected to generate $3.1 billion in licensed cannabis sales, though it was still smaller compared to the $8.7 billion expected to be spent in the illicit market.

During the pandemic, the agency has adapted by allowing for curbside pickup at dispensaries as well as the deferral of licensing fees this summer to allow cannabis businesses to adjust to operating challenges. The sector is holding steady although operators were not eligible for the federal Paycheck Protection Program earlier this year or for many traditional bank lending programs.

“The state implemented a 60-day renewal fee deferral program between May and August, and we saw about a quarter of our eligible licensees take advantage of that program, which was pretty, pretty impressive,” Elliot said. “The state created some tax relief programs to aid with cash flow, especially for this industry in the absence of access to capital and federal aid.”

Heading into 2021, cannabis businesses face additional challenges even if the introduction of the vaccine tamps down the pandemic. At the top of the list is a tax burden that cannabis entrepreneurs during the web conference said is still too high and allows the black market to continue to thrive. (The conference host, North Bay Business Journal, is a sister publication of The Press Democrat, both owned by Sonoma Media Investments.)

“I think we as a legal market have a very tough time undercutting the unregulated and illegal businesses,” said Kristi Palmer, co-founder of Kiva Confections in Alameda. “Overall, I think the barriers of entry are too high right now.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.