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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.

First Quarter of 2019-20: $104 Million. The administration currently estimates that retail excise tax revenue was $82 million and cultivation tax revenue was $22 million in the first quarter of fiscal year 2019-20 (July through September).

Revenue Growth Slower Than Before, But Still Strong. Last quarter’s $104 million total is 6 percent higher than the current estimate for the prior quarter ($98 million)—noticeably slower growth than before. Year-over-year growth, however, remains strong: last quarter’s $104 million total is 54 percent higher than the current estimate for the first quarter of the 2018-19 fiscal year ($68 million). Although we rarely observe such rapid growth in other revenue sources, it is not very surprising in the context of a new legal market.

LAO Report on Cannabis Taxes Coming Soon. Proposition 64 directed our office to submit a report to the Legislature by January 1, 2020, with recommendations for adjustments to the state’s cannabis tax rate to undercut illicit market prices, generate sufficient revenues, and discourage youth use. We expect to publish this report later this month.


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