California marijuana taxes fall; industry blames hemp

Two days before California Gov. Gavin Newsom proposed an emergency order to regulate easy access to “intoxicating cannabis,” the state released its second-quarter marijuana tax results.

Tax records show the industry has seen revenue decline year over year as it competes with cannabis.

Two communities that derive their products from the plant are currently competing for a limited market in California that is seen as a stalemate due to intense, untaxed competition.

Total marijuana tax revenue for the period ending June 30 was $263.1 million, down about $100 million from three years earlier.

Sales tax revenues didn’t fare much better for marijuana when it comes to the breakout. In the latest quarter, they totaled $108.7 million, down more than 9% year over year. They’re down $30 million over the past three years.

Taxable cannabis sales — the actual revenue from the goods — totaled $1 billion in the second quarter, down a third from $1.5 billion in 2021 during those three months, according to state tax records.

“It’s certainly an indicator of where the industry is. The illegal market is untaxed and unregulated. Furthermore, the unregulated cannabis market is out of control,” said Solful CEO Eli Melrod, citing cannabis products sold at Bev Mo and delivered by Door Dash as “outrageous to suggest that anyone had that intention.”

The cannabis community blames several factors for the decline in sales and revenue. First, it cites competition from the illegal marijuana market.

Recently, the cannabis community has been pointing fingers at the cannabis industry for driving down profit margins on cannabis. Critics say cannabis products have become more common in retail outlets and more intoxicating due to rising levels of THC.

Three years ago, Newsom signed legislation that limits the concentration of THC in cannabis beverages and foods to 0.3%, with labeling restrictions. But critics say manufacturers have found ways to get around the law. Since then, the products have exploded in popularity, critics say.

Marijuana advocates, including a state trade association, want a more level playing field, regulating the content of cannabis products and requiring them to be sold at dispensaries along with marijuana.

“When California voters passed Proposition 64, legalizing adult-use marijuana, they made it clear they wanted it to be carefully regulated and taxed,” said Tiffany Devitt, head of government relations for CannaCraft, a distributor in Santa Rosa.

This month, Newsom introduced emergency legislation banning the sale of cannabis containing detectable amounts of THC, the main ingredient that produces a high.

Once approved by the state Office of Administrative Law, the regulations will require such products to contain no detectable amounts of THC.

Packaged products would also be limited to five servings and sales would be restricted to those 21 and older — restrictions supported by Youth Forward, a Sacramento-based group that advocates for youth public safety.

The nonprofit says the cannabis industry appeals to young people looking for an easy high.

“On October 28, 2023, I purchased a jar of intoxicating edible cannabis products (near the high school) that appeared to be Hawaiian Punch pineapple gummies,” Youth Forward Executive Director Jim Keddy wrote in a letter supporting House Bill 2223.

But legislation last year to restrict hemp cultivation, authored by California State Assemblywoman Cecilia Aguiar-Curry, a Democrat from Winters, defeated the Appropriations Commission proposal, which closed on Aug. 31.

Curry said he was “very disappointed” given the massive negotiations between the two sides and the multiple iterations of the now-stalled bill, which includes 44 pages of amendments.

“Was I surprised? Absolutely. I’ve had families come to my office in tears, complaining that their children were drinking these products,” she said. “I’ve tried to get the Senate involved. But I’m a bulldog and I’m not giving up. We’ll get back to working with the industry.”

In November, the state legislature will begin working on bills for the upcoming January session.

California Cannabis Industry Association (CCIA) spokeswoman Amy O’Gorman Jenkins, speaking on behalf of the board, called it a mistake to “block legislation that would provide protections for consumers and secure the future” of the cannabis industry.

“We have seen marijuana tax revenues decline by nearly 20% since 2021, while an untaxed and untested cannabis market bypasses critical measures the state has put in place to regulate the plant,” she said. “Everyone should be concerned about this outcome. (CCIA) remains steadfast in its commitment to correcting this failure.”