Skip to main content

Feature: California Tax Authority Says Legal Marijuana Could Generate $1.4 Billion in Tax Revenue a Year

Submitted by Phillip Smith on (Issue #594)

California could take in nearly $1.4 billion a year in tax revenues from legal marijuana sales, the state Board of Equalization said in a report released Wednesday. The report was an analysis of the fiscal impact of a pending marijuana regulation, taxation, and legalization bill, AB 390, introduced in February by Assemblyman Tom Ammiano (D-San Francisco).

cash crop in waiting
The Board of Equalization estimates are slightly higher than a similar analysis by California NORML. That analysis estimated annual marijuana tax revenues at between $1.01 billion and $1.26 billion.

The Board of Equalization estimates that a $50-an-ounce fee on marijuana sales would generate $990 million a year. The state would also take in an additional $392 million annually in sales tax revenues. The board did not supply an estimate of the costs associated with implementing the bill, but said it would incur "substantial administrative costs." It also noted that there could be a decline in alcohol and tobacco tax revenues if a substitution effect occurred. In other words, some smokers and tipplers might switch to pot if it were legal.

Based on a review of the literature, the board estimated that annual marijuana consumption in California was one million pounds, or 16 million ounces. The board assumed that the legalization of marijuana would cause a 50% retail price drop, which would increase consumption by 40%, but that the imposition of the $50-an-ounce fee would cause that later figure to drop by 11%.

The revenue estimate comes as California grapples with a huge fiscal crisis. The state is running a $26 billion budget deficit, state employees are being furloughed or laid off, and some vendors and recipients of cash payments from the state are now being paid with IOUs.

As currently written, however, the Ammiano bill would not direct revenues into the state's general fund. Instead, they would be dedicated to drug prevention and rehabilitation programs.

That bill could get a hearing this fall, an Ammiano spokesman told the Chronicle Thursday. "Right now, we are tentatively looking at a hearing date around the end of the year," said Quintin Mecke in Ammiano's San Francisco district office.

"It defies reason to propose closing parks and eliminating vital services for the poor while this potential revenue is available," Ammiano said in a statement.

That sentiment was echoed by California NORML's Dale Gieringer, author of the report mentioned above. "With the state in dire financial straits, it makes no sense for taxpayers to be paying to arrest, prosecute and imprison marijuana offenders, when they could be reaping revenues from a legally regulated market," he said.

The report is also contributing to the ever-increasing buzz about marijuana legalization in California. Last week, the Marijuana Policy Project unveiled a TV spot touting the Ammiano bill. The ad, and its rejection by a handful of TV stations in major California markets, drew renewed national media attention to the issue, and this week, the Board of Equalization report is drawing media like flies to honey.

"The release of the estimate has certainly caused a new round of attention to the issue," said MPP communications director Bruce Mirken. "The TV business channels have been especially interested. I was just interviewed by CNBC's Power Lunch, and Fox Business News is also very interested, as well as other media. The interest is certainly continuing," he said.

The report only adds to the growing momentum for marijuana legalization in the state, said Mirken. "It definitely bolsters the case that this is a significant pot of money sitting out there that the state is turning away right now."

The state government isn't the only California entity to express interest in marijuana tax revenues this week. Also on Wednesday, Los Angeles City Council members Janice Hahn, Dennis Zine, and Bill Rosendahl introduced a motion asking city finance officials to look into taxing medical marijuana sales in a bid to close the city's budget gap.

Los Angeles is home to hundreds of dispensaries -- estimates range from 400 to 700 -- doing a thriving business. Hahn argued that taxing the dispensaries could generate significant revenues. The motion itself alluded to a proposed tax increase on medical marijuana dispensaries in Oakland -- proposed by the dispensaries themselves -- which is projected to bring in $300,000 for city coffers. Oakland has only four dispensaries.

Also on Wednesday, supporters of a proposed 2010 ballot initative, the Tax, Regulate, and Control Cannabis Act submitted the measure to the attorney general's office. Spearheaded by Oaksterdam University's Richard Lee, the measure would repeal all state and local laws criminalizing marijuana.

Under California law, the attorney general must provide a ballot summary before supporters can begin gathering signatures. That is only a first step in getting the measure to voters next year. Organizers would then have to gather 443,000 valid signatures to get the measure on the ballot.

It is unclear at this point whether the ballot initiative organizers are planning a serious effort to make the 2010 ballot or if they are just laying down a place marker to keep their options open. In any case, it is increasingly clear that the pot is boiling over in California.

Permission to Reprint: This content is licensed under a modified Creative Commons Attribution license. Content of a purely educational nature in Drug War Chronicle appear courtesy of DRCNet Foundation, unless otherwise noted.


Gerald Sutliff (not verified)

There's added fiscal benefits from marijuana legalization: hemp cultivation and product development being perhaps the largest. The other would be ending the law enforcement burdens including fewer incarcerations expenses..

Fri, 07/17/2009 - 1:59pm Permalink
NorCalMedicalC… (not verified)

Happy day to all from Beautiful Garberville California. The skill of Medical Cannabis growers has reached a level where high potency plants can reach between 10 and 30 ft high and wide. We are opening woodshops and mills in California,Oregon,and Washington producing the highest quality composite lumber,fiberboard,cardboard,paper,the list goes on,all from the stems of these giant cannabis plants leftover after bud harvest. We are putting our opponents down by proving to the public that more and higher quality wood products are produced from medical cannabis stems than trees could ever produce. This means jobs returning,mills reopening,and prosperity on the rise. So to all you who are trying to stop medical cannabis people from restoring jobs in the hemp wood products by growing more giant medical cannabis plants for more than just medical purposes; I urge you to take your violent,fraudulent attempted dictatorship and get out of America and every location on Earth so real people can get back to work and have happier lives! Peace and Love to all from James

Fri, 07/17/2009 - 6:04pm Permalink
Anonymous (not verified)

$1.4 billion tax revenues are from just the sale of the plant itself. Just think of all the black marketers not paying their income tax. All the people working in the marijuana industry would be a new source of tax income. I wonder if they even considered the fact that all the stores selling it would be paying a business tax on top of excise tax being proposed?

Sat, 07/18/2009 - 2:53am Permalink
Anonomous (not verified)

Have you seen the msnbc show "Morning Meeting"?
They are trashing our cause with false information and democrats like Karen Finney are outright laughing at the suggestion of is sickening!
I suggest an organized write in campaign to the show demanding that if they are going to raise the issue they should get serious and stop acting like Reagan republicans.

Tue, 07/21/2009 - 11:39am Permalink
burn one (not verified)

In reply to by Anonomous (not verified)

of course every politician laughs at legalization. no politician takes their job seriously... in my opinion there will never be legalization, at least not in my lifetime. tyranny of the majority, thats the problem.

Tue, 03/23/2010 - 1:10pm Permalink
Carl In S.F. (not verified)

Legalizing pot faces serious political obstacles, but do not let that keep you from helping the state out. Let me propose for those who endorse legalizing and taxing pot as a means by which to help ease state budget problems - voluntarily pay the tax.

For California (illegal) pot smokers, simply declare on your annual tax return that you purchased X dollars of pot in the prior year, multiply that dollar amount by your local tax rate, where I live, its 9.25%, and add it to your tax liability. Come to think of it, this would work regardless of the illegal drug used – cocaine, methamphetamine, extasy, LSD, heroin, etc. Remember though, California is broke so be honest about the amount of illegal drugs you buy.

We don't need more unnecessary laws; we just need to enforce the laws that are already on the books.

In fact, California like every other state I know has both a sales and use tax. The sales tax is reported and remitted by retailers while the consumer reports and pays the use tax. So when illegal drug users buy dope and don’t pay either a sales or a use tax, they are not only contributing to death and violence such as is going on in Mexico right now, but they are also tax cheats and are helping deprive California of revenues it needs to keep nurses, teachers, police, firefighters and tax collectors, on the job.

Join ranks with medicinal pot users who already pay sales tax. You don't need to the cowards in Sacramento to legalize your drug addictions to pay the tax you owe, just declare your usage on your tax return.

Take a page from the Gay & Lesbian community and come out of your closet. Do it for the kids.

Sat, 07/18/2009 - 10:13pm Permalink
Anonymous (not verified)

I don't appreciate your calling marijuana dope. What do you call alcohol then-the gateway to wisdom? The state needs to help cannabis users by stopping kicking their faces in, before cannabis users should help the state by giving a penny more than they are forced to, to the government that is screwing them so royally.
Alcohol supremacism over cannabis tramples on every American principle of justice and fair play, the bloodshed because of the war on selected drugs is squarely on the shoulders of those making such crazy, dictatorial, violence-promoting choices as ordering alcohol use over cannabis use.
Your last comment was interesting, maybe I'll deal with it later. Gotta get back to work!

Sun, 07/19/2009 - 9:43am Permalink
disgruntled veterans (not verified)

prohibition are the same illegal secret drug dealers that keep it going in its double standard form called drug prohibition. Their just like any other cruel dictatorship which uses prohibition as resource deprivation tool as they are exempt from punishment. Just look at the story of Oliver North and Freeway Ricky Ross and you will see what we mean.

Sun, 07/19/2009 - 7:00pm Permalink
Anonymous (not verified)

I hear the Board of Equalization is predicting a 40% increase in use with legalization.
Hard to believe since in every place where decriminalization has been implemented use has dropped.Has there been a huge increase in Alaska?
Does anyone remember the National Academy of Sciences report "An Analysis of Marijuana Policy"?
From what I've seen since the election,democrats have been worse on this issue than republicans...time for a third party.

Tue, 07/21/2009 - 12:33pm Permalink
Agustis (not verified)

I'd rather pay the tax then my $1000 fine, and have a clean record. I would also have a bomb job..... legalize Marijuana...... right here in america yeah.

Wed, 07/29/2009 - 3:26am Permalink
milfordberry (not verified)

write to your politicians and make them work for your cause, let the peoples voices be heard, we need to get the 18-35 age group voting as the 50-65 year old voters are always at the polls if we all vote our voices will be heard in numbers a lot harder for the government to styfle the word of the people,for the people by the people lets make that ring true. in the good old usa as we need to stop putting our non violent citizens in jail for nothing , not to mention all the possibilities we could use it for fuels, oils,clothing, food, plastics,and building supplies,the list goes on and on ect..............peace love and constitutional rights for privacy, the right not to incriminate ourselves, and the pursuit of happines

Sat, 08/01/2009 - 12:19am Permalink

Add new comment

The content of this field is kept private and will not be shown publicly.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.