Governor Newsom Proposes 2021 Budget Amid $1 Billion in 2020 Cannabis Tax Revenue: State Regulatory Consolidation, Permanent Equity Funding, and Unchanged Tax Rate

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Governor Newsom Proposes 2021 Budget Amid $1 Billion in 2020 Cannabis Tax Revenue: State Regulatory Consolidation, Permanent Equity Funding, and Unchanged Tax Rate

On Friday, January 8, 2021, California Governor Gavin Newsom released his proposed state budget for 2021-2022, proposing a July 1 date for consolidation of the three main cannabis state regulators in California. Newsom’s proposed budget calls for a $154M Cannabis Control Fund to cover the costs of consolidating the three state regulators into the stand-alone Department of Cannabis Control under the California Business, Consumer Services and Housing Agency led by Secretary Lourdes Castro Ramírez. The California Department of Agriculture, and the California Department of Public Health would retain control of the Cannabis Appellations Program and the O-Cal Cannabis Program after consolidation on July 1, 2021.

California likely collected $1 billion in cannabis cultivation, excise, and sales taxes in 2020. The proposed budget for 2021 has the same 60-20-20 allocation from the Cannabis Tax Fund for youth education/prevention, environmental protection, and public safety activities, but the total amount allocated to these activities will increase by $146M compared to last year’s 2020 budget. New for 2021, Governor Newsom is proposing statutory changes to provide for a permanent $15.5M allocation from the Cannabis Tax Fund for the local equity grant program administered by the Governor’s Office of Business and Economic Development (GO-Biz). These proposed statutory changes are designed to complement the expansion of the Equity Local Liaison Unit to support operators across all license types along the legal cannabis supply chain.

California’s Proposition 64 levies taxes on the cultivation and retail sale of cannabis. The cultivation tax is paid on all cultivation of cannabis, and was increased, to adjust for inflation, to $9.65 per ounce of flower, $2.87 per ounce of trim, and $1.35 per ounce of fresh cannabis plant on January 1, 2020. The increase scheduled for 2021 was paused in order to provide tax relief to the cannabis industry. In addition, there is a 15‑percent tax on the retail price of cannabis. Since January 1, 2018, California has likely collected over $2 billion in cannabis cultivation, excise and sales taxes. 

The Governor will issue changes to the proposed budget in May based on the latest economic forecasts ahead of enactment this summer.