California Gov. Gavin Newsom revised downward the state’s projected cannabis excise tax yield due to the negative impact of COVID-19.
Initially, Newsom’s proposed state budget released in January estimated the cannabis excise tax would net $479 million this year and $590 million next fiscal year, which starts on July 1. However, the recently updated proposed budget forecasts the cannabis excise tax at $443 million this year and $435 million next year, reports the Los Angeles Times.
“While similar products like alcohol and tobacco tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the COVID-19 pandemic,” the budget states. “Cannabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the COVID-19 recession, and still must contend with competition from the black market.”
Not everyone expects sales to be so bleak.
A spokesman for the California Cannabis Industry Association says following an early sales spike caused by “panic buying,” cannabis sales have now “leveled out.” Furthermore, the future is “very unpredictable” and the data is inconclusive as to whether sales will trend downward.
Indeed, BDSA, a cannabis industry market research firm, expects California cannabis sales to grow to $3.6 billion this year over last year’s $2.9 billion.
One reason is that legal sales will continue gaining market share from the bigger black market.
Yet, some argue that people today have less disposable income and will therefore opt for the lowest priced cannabis, even if that means buying from the black market.
Legal cannabis sales face other headwinds post-pandemic. For instance, the largest customer base is young people, including college students, and this group faces among the highest rates of unemployment.
Additionally, tourists are responsible for 30 percent of cannabis sales in cities such as Los Angeles, San Francisco and San Diego.