California is facing a major gap between what it's owed and what it's been paid in taxes from cannabis businesses in the state.
According to new research from GreenWave Advisors, the state of California is owed approximately $732 million in sales & use, excise and cultivation taxes including penalties and interest. And 72% of that total is due from businesses that are no longer up and running.
GreenWave said the California Department of Tax and Fee Administration has identified $173 million in excise taxes on illicit cannabis shops, which figures out to an implied sales value of about $1.2 billion. The research firm said the total likely represents "just a fraction of the state’s legacy market. If consumers made these purchases through legal channels, reported sales would have been 27% greater than the $4.4 billion reported in 2023, underscoring the state’s market potential."
The unpaid taxes are impacting California's cannabis market, which GreenWave estimates to be worth about $7 billion, in several ways.
"We determined the estimated retail sales values for the excise taxes and potential amounts owed to product manufacturers (brands). If the distributors cannot remit taxes collected from retailers to the state, it is likely brand manufacturers will also go unpaid. We estimate distributors owe ~$1.2B as of January 31, 2024, up from the $1B we estimated as of June 30, 2024 (we excluded the calculation on illicit sales because it’s unclear where these products come from)," the firm wrote.
