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The Perishables Ecosystem –Food, Wine, Cannabis & More

Excise Tax

Forecast Mixed On California’s Cannabis Sales Due To COVID-19

Lara L. Sowinski · June 2020 ·

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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.

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Filed Under: Cannabis Tagged With: cannabis, Excise Tax, Supply Chain

Primary Sidebar

I VOTED (for cannabis)

No matter their political stripe, many Americans are in agreement with efforts to legalize recreational and medical cannabis.

On November 3, voters legalized marijuana for adult use in Arizona, Montana, New Jersey and South Dakota. Initiatives to legalize medical cannabis passed in Mississippi and South Dakota. The rapid expansion of legalized cannabis throughout the U.S. has a direct impact on the supply chain.

Let’s start by considering the food supply chain–a valuable case study with COVID-19 as the backdrop. Early on, Americans experienced food shortages at the retail level. Manufacturers and distributors scrambled to realign networks to supply grocery stores where demand was spiking, while shifting away from restaurants and the hospitality sector where demand was tanking. In a matter of months, online shopping and food delivery to consumers’ homes grew dramatically. As a result, the food supply chain is in the midst of reinventing itself.

The cannabis supply chain faces some similar challenges. Most importantly, there’s an opportunity now to learn and adopt best practices from the food and pharmaceutical supply chains with which it shares key commonalities.

What are the risks to the cannabis supply chain? California’s unprecedented fires this year threatened growers throughout the state. How quickly can infrastructure scale-up to meet demand, and at what cost? Commercial and industrial real estate is currently at a premium with the proliferation of e-commerce. What about transportation, distribution and logistics capabilities, including reverse logistics in the case of product recalls? Facilities, equipment, and skilled workers are in high demand, and as competition for these various assets tightens, what does that mean for the entire perishables sector (food, cannabis, wine, beverages, pharma, etc.) that need them? Collaboration and creativity can provide critical solutions across the board.

On a related note, a small handful of American and European companies are in talks with Rwanda now about exporting cannabis to the country to meet rising pharmaceutical demand. Supply Chain Sparrow has previously identified cannabis exports as a massive opportunity for the U.S., which of course, would require legislative changes at the federal level.

Vote. And keep on voting.

Be Brave. Fly Right. And keep in touch at info@scsparrow.com.

Lara L. Sowinski, Executive Editor

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