California cannabis prohibition is costing the state about $1 billion per year in lost tax revenue that’s sorely needed for social services, a new analysis from the state’s Department of Finance reports this December 21.

Department of Finance director Michael Cohen and legislative analyst Mac Taylor reported to the Attorney General Kamala Harris this December that the state stands to gain over $1 billion in uncaptured tax revenue if California legalizes cannabis for adults 21 and over in the November 2016 election.

The Department of Finance serves as Governor Jerry Brown’s chief fiscal policy advisor and is tasked with promoting a strong, sustainable, responsible financial plan for the state.

Cohen and Taylor analyzed the leading adult use marijuana initiative for 2016, finding:

“In total, our best estimate is that the state and local governments could eventually collect net additional revenues that could range from the high hundreds of millions of dollars to over $1 billion annually.”

State financial experts also estimate about $100 million per year in state savings from “the reduction in state and local criminal justice costs” associated with cannabis prohibition. Researchers conclude California’s century-old cannabis prohibition has failed. The state, led by San Francisco Sen. Mark Leno, made personal possession of pot an infraction in 2010. Misdemeanor charges for pot have plummeted 90 percent from a high of 60,000 per year to about 6,000.

That $1 billion in taxes would come from the Adult Use of Marijuana Act’s 15% excise tax on retail marijuana; plus a $9.25 per ounce tax of the cultivation of flower buds, and $2.75 per ounce tax on less valuable, loose leaf parts of the plant, called trim.

AUMA calls for those taxes to be spent on:

— up to $50 million each year for mental health and substance abuse programs in affected neighborhoods — $10 million per year for researchers to study legalization’s impact — $3 million per year for the California Highway Patrol to research stoned driver interdiction — and $2 million annually to research usefulness and side effects of medical cannabis.

Any left over revenue would be earmarked for teen pot use prevention and treatment, environmental restoration, and road safety efforts.

The Department of Finance cautions that: “the potential revenue and expenditure impacts … are subject to considerable uncertainty” caused by three main factors: local bans on pot commerce (which divert local taxes to black market dealers and gangs); cannabis consumption rates; and the federal government’s continued hands-off approach to legalization in now-four states and Washington D.C.

California’s toothless pot prohibition is shortchanging the state of needed revenue, said State Board of Equalization member, CPA and former San Francisco supervisor Fiona Ma, in an October interview.

“The biggest underground economy in the state is the cannabis industry,” Board Member Ma said. “The cannabis industry wants to come out of the shadows, become legal, be law-abiding and pay their taxes. It could be five to ten billion taxable dollars per year.

“That’s a lot of money that could help our schools, public safety, help rebuild our roads and our infrastructure, our parks — all the things we go crazy about every day, because we’re like, ‘why isn’t this being fixed?’ I think the cannabis industry can do a lot to help bring money into our coffers.”

Here is the Department of Finance’s analysis of the Adult Use of Marijuana Act.

Here is the text of the revised Adult Use of Marijuana Act.

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