You could pick just about any week over the past year or so to demonstrate how rough things are for the brand-new cannabis industry in California, and how differently things are playing out compared to what was promised before and just after Proposition 64 was passed in 2016, legalizing recreational pot. This past week or so is as good a period as any to examine, and perhaps better than most, so let's take a look at some of the most recent incidences of dysfunction around the state.The most overarching story, reported on Thursday, was the state government's release of documents showing that Gov. Gavin Newsom had lopped $223 million off the administration's projections of what the state would collect from state taxes on cannabis over the next year. "What that means," the Associated Press informed us," is that slower-than-expected pot sales are gouging a hole in California's budget." It might at first seem counterintuitive, but a major reason for the tax shortfall is high taxes at both the state and local levels. California imposes a sales tax of 15 percent. Together with other taxes imposed by the state, and local taxes that bring effective rates up to 50 percent in some places, the burden is so high that most recreational pot users continue to buy weed on the black market.
Newsom has been blunt about the situation all along, which could be seen as refreshing honesty after all those of years legalization advocates in and out of government promising that cannabis would shower riches upon the state. Newsom estimates that it will take 5-7 years to work out all the kinks as the industry stabilizes. "It takes time to go from something old to something new," the AP quoted Newsom as saying. That's a far cry from what the state was declaring in the lead-up to Proposition 64, when the government projected state tax revenues would reach $1 billion within the first few years.
Newsom also made sure to point the finger away from himself and toward local governments that are blocking the cannabis business at every turn, sending their residents to the black market. He's not wrong: About 80 percent of California's cities and towns are not served by a cannabis shop. Last week, Corte Madera's Town Council made permanent its temporary ban on any kind of cannabis businesses setting up shop in the town, but voted to allow people to grow their own weed. The council's vote to solidify the ban was unanimous, and judging by the comments made during the session, was motivated by a "But what about the children?" sentiment. Council member Eli Beckman said that he at first thought the ban was hypocritical because the town allows sales of liquor, but after talking to people about the issue, he decided that pot presented "mental health dangers" to vulnerable youth.
Also last week, the Benicia City Council reversed course and decided not to allow retail pot establishments in the city. The vote was a surprise given that the government had collected about $180,000 in application fees from nine prospective retail licensees vying for what was to be two available licenses. The city still allows cultivation, manufacturing, and distribution businesses to operate in its industrial district.
The immense challenges of paying taxes and license fees, and adhering to often-draconian regulations, tend to put a crimp on profits, which helps to explain why so many jobs in the cannabis industry tend to be low-paying. The New York Times reported last week that, according to its own analysis, most cannabis jobs "are on the lower end of the pay scale." Trimmers and other agricultural workers make between $10 and $15 an hour, according to the Times, while budtenders earn only about $25,000 per year on average. People in bigger cities, particularly in California, can make considerably more, but that's offset by the high cost of living, as any Oakland budtender will tell you. Of course, executives and owners are making money comparable to what many of them were making in the industries they came from: finance, liquor, pharmaceuticals, etc. And there is growing demand, and competitive salaries, for people with expertise in chemistry, crop science, software, packaging, and other specialty skills.
While average salaries might be low for now, job growth in the industry is exploding. About 300,000 people work in cannabis, according to the Times. And Leafly reports that pot-sector employment grew by 44 percent last year alone.
Another promise that came with legalization in California was that cannabis would be tracked and traced electronically, making it easy to collect data to ensure compliance with laws and regulations and to assess taxes. But so far, just nine of the state's 627 cannabis shops are using the state's computerized system, and only 93 of about 1,000 manufacturing companies and 254 of 4,000 legal growers are doing so, according to analysis by the Associated Press reported last week. The rest are all still working with paper records. This again gets back to the state apparently not quite realizing how complex a brand new, highly regulated business would be: state officials didn't appreciate how much effort it would take to get the system up and running, and to train people in the industry on how to use it.