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In November 2016, California voters approved Proposition 64, which legalized the nonmedical use of cannabis. The state levies two excise taxes on cannabis: a retail excise tax and a cultivation tax.

January Budget Assumptions. The Governor’s January budget proposal assumed that 2018-19 revenue would be $355 million and that 2019-20 revenue would be $514 million.

Second Quarter of 2018-19: $67 Million. The administration currently estimates that retail excise tax revenue was $51 million and cultivation tax revenue was $16 million in the second quarter of 2018-19 (October through December).

Fiscal Year to Date: $133 Million. The administration’s combined estimates for the first two quarters of 2018-19 are $104 million of retail excise tax revenue and $29 million of cultivation tax revenue.

2018-19 Revenue Scenarios. Over the four quarters of calendar year 2018, cannabis tax revenue grew at an average quarterly rate of 22 percent. If revenue grew at this pace over the next two quarters, the 2018-19 total would be roughly $315 million. If, instead, revenue grew at a 2 percent rate—as it did this past quarter—2018-19 revenue would be roughly $270 million.

LAO Comments. In either scenario described above, 2018-19 revenue would be lower than the administration assumed in January. When it made these projections, however, the administration emphasized that they were subject to considerable uncertainty. In further acknowledgment of this uncertainty, the Governor waited  to allocate a substantial portion of the projected revenue until May.


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