Politics California’s $635M in cannabis taxes—where is it going? David Downs January 24, 2020 Share Twitter Facebook Share Print For starters, Prop 64 covers childcare for about 11,000 low and moderate-income children in fiscal year 2020-2021. (CSA-Archive/iStock)

Brand new parks. Healthier, smarter kids. Forests cleaned up. Drugged drivers off the road. Criminal records cleared.

Those are just a few of cannabis legalization Proposition 64’s impacts after two years of commercial sales.

Passed in 2016, Prop 64 earmarks all cannabis tax revenue—less regulatory costs—for public health, the environment, and public safety. On Jan. 14, Gov. Gavin Newsom announced cannabis tax revenue social allocations totaling $332.8 million for the coming fiscal year 2020-2021.

While Colorado is known for its generous cannabis tax scholarships, California’s social revenue has eclipsed Colorado with no such narrative emerging.

We did the reporting, and it’s fairly easy to see why no one gets the full picture of Prop 64. The picture is as massive as California. Leafly had to track the data across about a dozen state agencies, and even more local ones.

Prop 64 funds are helping tens of thousands of Californians young and old out there right now.

Prop 64 funds are helping tens of thousands of Californians young and old out there right now. Just one Prop 64 Go-Biz grant is bigger than Colorado’s entire legalization benefits narrative.

It’s time the beneficiaries, taxpayers, and critics of Prop 64 alike share the same picture. Let’s take look.

What are California’s cannabis tax rates?

Prop 64 called for several layers of taxes:

There’s a 15% state excise tax on retail sales.

on retail sales. The proposition introduced a cultivation tax of $9.25 per ounce (later raised to $9.65).

of $9.25 per ounce (later raised to $9.65). In addition, there’s the state sales tax of 7.25% on all retail items including cannabis, plus an automatic local sales tax of up to 1%.

of 7.25% on all retail items including cannabis, plus an automatic local sales tax of up to 1%. Lastly, there are brutal local cannabis business taxes, which can run from 0% all the way up to 15% in some cities; it depends on which one. Oakland is 10%. San Francisco has no local cannabis excise tax.

California’s cannabis taxes rank in the middle of the pack for legalization states, according to the Legislative Analyst’s Office.

California marijuana tax revenue in 2019

In the calendar year of 2019, Leafly estimates California took in about $635 million in state and local cannabis tax revenue. That includes $538.10 million remitted to the state, and another $100 million to local sales tax coffers.

State cannabis tax revenue in 2019 rose 35% over 2018, the first year of commercial sales. California’s two-year-old program is already bigger than Colorado’s six-year-old one.

When you count local sales taxes, Prop 64 is on track to meet official 2016 estimates of $1 billion in annual tax revenue at industry maturity, and then annihilate that goal.

California marijuana tax revenue expenditures, fiscal year 2019-2020

After regulatory costs and research, the bulk of the funds flow to:

youth anti-drug programs (60%)

the environment (20%)

and public safety grants (20%)

In the first fiscal year of those disbursals, 2019-2020, they totaled about $200 million. Then tax revenue surged in 2019, so in the fiscal year 2020-2021 allotments have surged as well to $332.8 million.

Here’s where that money is currently going.

$140.8 million for 11,000 low-income children in child care

Every dollar spent on early child care and education nets society $17 in benefits, according to the National Conference of State Legislatures.

Thanks to Prop 64, 8,700 children in fiscal year 2019-2020 get vouchers to go to child care so their working low-income parents can keep their jobs. This helps “keep these children occupied and engaged in a safe environment, thus discouraging potential use of illegal substances or drugs,” the ’19-’20 budget states.

This underfunded program got decimated three times over by the Great Recession and is just now returning to 2008 levels, thanks in part to legal cannabis.

Specifically, Prop 64 directly funds 8,162 “child care slots” at the Department of Education Alternative Payment Program (AP) with $85.8 million in fiscal year ‘19’-20. Eligible families must earn less than 70% of the state median income and parents must be in school or working to access services (Think: single working mom making $57,000).

Almost one in seven CalWorks APP vouchers is now funded by legal cannabis.

According to the state, these child care slots are part of a subsidized child care program that “provide a critical service, helping families across California make ends meet.”

A 2017 report estimates 650,000 California children birth to age five do not have access to the publicly-funded early care and education programs for which they are eligible.

Next fiscal year, cannabis tax allocations to the CDE increase to $140.8M, paying for 3,621 child care slots. Almost one in seven CalWorks APP vouchers is now funded by legal cannabis.

$44.8 million for public health and safety grants in cities that allow dispensaries

The Board of State and Community Corrections received its first appropriation of $27.7 million in late 2019 for this ongoing grant program—which goes to local cops, firefighters, and others.

In February, cities and counties can apply for grants to “assist with law enforcement, fire protection, or other local programming to address public health and safety associated with the implementation of the Act.”

There’s a catch, too. The grants are only open to cities and counties that allow commercial cannabis. Ban towns, you get nothing.

“The BSCC is prohibited from making grants to any local governments that have banned the cultivation or retail sales of marijuana and marijuana products.”

$39.9 million to combat illegal grows, wildland restoration

Prop 64’s Environmental Restoration and Protection Account is managed by the Department of Fish and Wildlife—which got $39.9 million this fiscal year for clean-up. Over at the DFW, legal cannabis pays for marijuana eradication, and restoring forests and trails poisoned by illegal cannabis grows—of which there are still many.

According to Janice Mackey at the DFW: “This year we have added more wildlife officers, more environmental scientists and will be funding more clean-up programs. While the work is always ongoing, this amount is very meaningful and supports our mission to protect California’s natural resources.”

California remains the number one source state for illicit US cannabis. Four out of the five pounds of cannabis grown in California leaves the state, and as much as 70% comes from trespass growers who hide out on vast tracts of private and public wilderness—poaching, applying rodenticides, and fouling wildland.

So, for example in 2018, CDFW conducted nearly 400 missions on illegal grows located on public and private lands, hundreds of cannabis site inspections, assisted with more than 160 search warrants, and issued 273 Notice of Violation letters (NOVs).

In 2019, $25.3 million in cannabis taxes went to activities like removing the guns, meth, trash, and herbicides from Tulare County wildland.

In 2019, $25.3 million in cannabis taxes went to activities like removing the guns, meth, trash, and herbicides from Tulare County wildland, or keep the water flowing in the Trinity River for steelhead trout, Chinook Salmon, and Foothill yellow-legged frog.

According to Mackey, “Long after trespass cultivation sites have been vacated, water diversions continue to siphon water from creeks and food waste and pesticides continue to attract and kill wildlife.”

$37.5 million for helping thousands of at-risk youth

The state’s Medicare bureaucracy, the DHCS, is in charge of allocations from Prop 64’s Youth Education Prevention, Early Intervention, and Treatment Account (dubbed YEPEITA). Local non-profits can apply for grants of up to $1 million each from the $22.9 million that’s already in the account. The application deadline for this year is March 20.

The grant criteria aim for youth-led activist programs for kids 12-26 in low-income rural and urban communities disproportionately impacted by the war on drugs.

One example of potential grant activity: funding gay-straight alliances at six rural high schools in Plumas County, with the goal of reducing past-month LGBTQ teen drug use by 3% there.

Legal cannabis could pay the formerly incarcerated to help deter juvenile offenders.

One theme emerges—DHCS’ desire to blunt the health impacts of growing up a low-income minority; a demographic at higher risk of drug abuse. According to one state example, legal cannabis could pay the formerly incarcerated to help deter juvenile offenders.

$30 million in community reinvestment grants for social workers

Prop 64 pays for a brigade of social workers across the state to personally help veterans as well as the mentally ill, addicted, and formerly incarcerated get healthy, sober, employed, housed, and more. Go-Biz community reinvestment grants totaling $20 million went out to 67 groups in 2019. Among them:

Next year Go-Biz grants rise to $30 million.

$21.8 million for safer roads

Voters consistently worry about drugged drivers on the road post-legalization. So Prop 64 created a State and Local Government Law Enforcement Account. This year the CHP is spending its first $14.5 million “expanding training, facilitating research, and preparing to administer an impaired driving grant program.” Prop 64 ups that to $21.8 million in the next fiscal year.

While tax revenue exploded, suspected cannabis-involved crashes in California rose just .39%—by just two crashes—to 539 in 2019.

In the most recent year of reporting, 2018, California had an enviably low nine motor vehicle deaths per 100,000 population. By contrast, the prohibition bastion of Mississippi had 22.

$57.8 million to license, regulate the industry

Prop 64 called for legal cannabis to pay its own way, and it has.

In the fiscal year 2018-2019, Prop 64 taxes paid for regulators at three state agencies: the Bureau of Cannabis Control; the California Department of Food and Agriculture; and the California Department of Public Health. There’s now over 600 stores and delivery services, 4,500 farms, and 143 licensed edibles kitchens.

Total regulatory spend: about $57.8 million this coming year.

$15 million for cannabis science and policy research

Prop 64 also carves out funding for the University of California legalization research; DUI enforcement research; and medical cannabis research. Total research allocation: $15M.

Prop 64 is paying for a DUI task force, which reports that total DUI arrests for all drugs have fallen about 20% from a 2012 peak of 333,988, to 266,333 in 2018.

$100 million in local cannabis business taxes to parks, etc. annually

Beyond the state allocations, legal cannabis is quietly paying for new parks, cop cars, and ambulances across California. It comes through local cannabis business taxes of 1 to 15%.

That means extra well-baby visits in Santa Cruz, and new parks in places you’ve never heard of, like Woodlake, CA (pop. 7,649).

The state does not track local cannabis tax revenue, cities don’t have to report it, and many don’t. But based on reports we do have, Leafly estimates local cities and counties are taking in upwards of $100 million per year in aggregate local cannabis sales and business taxes, not including fees.

The city of Los Angeles, the largest municipal cannabis market on the planet, does not tout local cannabis business tax (10% of gross receipts) revenue. Leafly learned it totaled $8 million in 2018 and more than doubled to $18 million in 2019, according to the LA Controller’s office. (Those sales taxes were part of $70 million Los Angeles collected from cannabis-related business taxes and fees.)

Alameda County, which contains the city of Oakland, where there are eight stores, is probably netting around $12 million in taxes per year in local cannabis sales taxes, based on 2018 data.

San Jose acquired roughly $8 million a year.

San Diego reported $8 million collected for fiscal year ‘18-’19.

Santa Cruz nets around $2.4 million, based on 2019 data.

And San Francisco is netting about $2 million per year in local cannabis sales taxes (1%), off about four dozen stores doing $200M in annual sales. Local cannabis sales taxes rise to 5% in 2021.

All in all, the benefits accruing are substantial and rising. And that’s a good thing, because California’s challenges are big, as well.

Stay tuned for more on this story from Leafly.

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David Downs David Downs directs news and lifestyle coverage as the California Bureau Chief for Leafly.com. He's written for WIRED, Rolling Stone and Billboard, and is the former cannabis editor of the San Francisco Chronicle, as well as the author of several cannabis books including 'Marijuana Harvest' by Ed Rosenthal and David Downs. He co-hosts The Hash podcast. TW: @davidrdowns | IG @daviddowns View David Downs's articles