California Gov. Jerry Brown on Friday released a revised state budget plan, which showed a slower pick-up in tax revenue from the legal cannabis industry than expected and a weakening in revenue projections for next year.
"While the forecast assumes revenues will be phased in over time, preliminary data indicates revenue receipts are slower than anticipated," the budget said. "Cannabis revenue projections are subject to great uncertainty."
The new budget bumps the current fiscal year's outlook up $10 million, estimating the combined medical and adult use industry would generate $185 million in 2017 to 2018. For 2018 to 2019, or the first full year under California's Proposition 64 that legalized adult recreational use, the state lowered its outlook by about $13 million to $630 million in excise tax revenues.
The budget revision also disclosed that the first quarterly deposit, due at the end of April, came to $33.6 million in excise taxes — about on par with projections a watchdog organization on Monday said could impact the current year's revenues.
Brown included in the May revision an additional $133.3 million for cannabis-related activities, including license and permit processing, enforcement, laboratory services, information technology, quality assurance and environmental protection.
An independent state budget watchdog on Monday disclosed that marijuana tax collections are off to a slow start.
The state's independent Legislative Analyst's Office anticipated marijuana excise taxes in the first quarter of 2018, or the first three months since recreational marijuana sales started, would come in around $34 million and would likely miss the $175 billion goal for the first year's tax revenues.
"Based on this quarterly tally, we think that 2017-18 revenue likely will be somewhat lower than the administration's January estimate," the LAO said in a blog post Monday.
But the revised budget actually strengthen's the current fiscal year's outlook by about $10 million, from $175 million to $185 million. It's the next fiscal year, which starts July 1, for which the state mitigated its expectations, if only by $13 million.
"I would suspect they are anticipating a ramp up in entities being licensed, and that the increased access in the market will significantly accelerate growth and revenues," said Greg Shoenfeld, BDS Analytics' vice president of operations.
Industry experts say the slow start is not unexpected because other states such as Colorado and Washington also experienced hiccups in the early period of legal recreational marijuana sales. In the case of California, though, they say the situation was made worse due to problems with marijuana businesses getting licenses, local pushback and outright confusion.
"It's not a surprise that the state overestimated because they were probably using an ideal scenario to come up with these forecasts," said Chris Walsh, vice president of editorial and strategic development at Denver-based Marijuana Business Daily, which tracks the cannabis industry across the nation. "It's just getting off to an extremely rocky start."
Added Walsh: "There's going to be much fewer sales than expected until all that is ironed out. It might take a couple months, or it could take a year or more."