The state’s total cannabis tax revenue for the fourth quarter of 2024 was down over 13% to $218.96 million compared to the previous quarter, the California Department of Tax and Fee Administration (CDTFA) reported March 5. It also declined by over $56 million year over year for the same three-month period.

The results may need updating, since there could be a delay in some payments. That’s because in January, Gov. Gavin Newsom announced a three-month reprieve for businesses affected by the Southern California wildfires. As a result, some tax revenue may be delayed until April 30. The delayed collections would apply to totals provided in the next revenue update scheduled for May, the Business Journal was told.

CDTFA regularly adjusts the tax revenue numbers to account for late receipts.

Excise tax amounts for 2024’s fourth quarter came in as $127.77 million, down about $33 million YOY and by approximately a sixth of what was collected in the previous quarter of 2024 ($150.12M).

Excise taxes are collected at point-of-sale like sales taxes and are imposed on certain goods such as airline tickets and tobacco. These figures may also change for this year, as California Assembly Bill 195, which eliminated the cultivation tax that attempted to rescue growers, will raise the excise from 15% to 19% come July. State cannabis control officials say that law could change as well.

In the meantime, the looming prospect of taxes going up another 4% was viewed unfavorably by Solful’s CEO Eli Melrod, who runs three cannabis retail outlets in Sebastopol, Healdsburg and San Francisco, with Petaluma coming on board by the end of the year.

“The cannabis industry is already in a challenging place due to high taxes. It’s hard to comprehend the impact to an industry already on life support,” Melrod said. “We should have an industry that works. I guarantee we’ll see a loss in revenue, and the illicit market is already booming.”

When asked if customers complain about prices at the cash register, he replied: “Every single day, and people put product back.”

This happens despite a record harvest last year, the Business Journal reported in December.

Sales tax collections quarter to quarter in 2024 show an over 12% decrease. The $91.18 million was also about $20 million less YOY.

How it looks

Since January 2018, total cannabis tax revenue has added up to $6.7 billion. About half that amount comes in the form of excise tax. Sales tax accounts for about one third of that total. The state stopped collecting cultivation tax three years ago.

For the last five years, many cannabis businesses ranging from growers and producers to retailers and delivery services have tried to overcome industry challenges. The most pressing of these revolve around a market glut, with more product than places to sell it. This led to a lowering of wholesale prices that nearly collapsed the market and was exacerbated by a growing illicit market with no tax burden.

The state has undergone an extensive effort to stomp out the illegal cannabis industry. A two-pronged approach involves propping up the legal market and taking down the illegal version.

A crackdown

The United Cannabis Enforcement Task Force reported March 4 it had seized $534 million in illegal cannabis product last year.

Mendocino County made the list of top 10 counties for enforcement activity, having product confiscated and destroyed at a value of $52.5 million.

Officers served 425 search warrants across the state and seized over $484 million worth of retail, outdoor and indoor cannabis plants. More than 100 firearms were also been confiscated.

“These enforcement efforts highlight California’s continued focus on maintaining the integrity of the legal market, supporting licensed operators and protecting consumers and communities from the harms associated with unregulated cannabis activities,” state Department of Cannabis Control Director Nicole Elliott said in a statement.

Help from the state

On the horizon, the governor’s Office of Business and Economic Development (Go-Biz) also announced on March 4 $18.4 million in funding for local cannabis equity projects. The program seeks to bring a wide array of applicants into the market to help the legal trade.

Sonoma County is set to receive $558,102 in funding which the Board of Supervisors is due to review during the March 11 meeting.

The last round of funding supported 20 grantees with $635,000 in grants earmarked for their businesses.

“We believe we’re going to receive many more applicants this time around,” Sonoma County Cannabis Ombudsman Micall Miller said.

The supervisors are set to return April 15, to receive a tax analysis and to review the status of its own local cultivation ordinance.