The last few years have seen an increase in marijuana legalization in the US. More interestingly, California recently joined the long queue of states that have legalized the recreational use of weed, starting from January 2018. California is the country’s most populous state. This situation projects economic and social issues that cannot be ignored: tax, distribution, and use. What are the implications?
It first happened in Colorado in 2012. Half a decade later, seven states and the capital of the United States, Washington DC had voted to legalize the recreational use of weed, with California making the latest addition to the list of other states. This year, however, holds a lot of questions about the use of the product in California as its individual cities and counties are still deliberating on the policies that will regulate its use. In states where marijuana use is already legal, you can have up to 1 ounce, trade in licensed retail stores, and grow up to 6 plants domestically. California has the sixth largest economy in the world, thus, it cannot be overemphasized that the legalization of marijuana has an important economic role to play.
The Importance of Marijuana to California’s Economy
First, we should get our facts right:
California as a single state is “the world’s largest sixth economy in the world, only outpaced by the US (as a whole), China, Japan, Germany, and the UK” – Business Insider. In 2016, California’s GDP rose to $2.637 trillion with a 2.1% growth in 2017. This is one reason why the legalization of marijuana in the state is raising a lot of dust. Projecting on the domestic cultivation, sales, and local distribution of marijuana in California in 2018, we are looking at an additional $1.5 billion being injected into the market, and which is believed to grow up to $4 billion by the end of 2020. The state will certainly get a large chunk of the revenue generated from the production and sales of marijuana.
Marijuana Legalization in California and Tax
California Proposition 64 passed with 56% of the votes in favor of legalizing marijuana, and there are two specific taxes that apply to its legalization: Cultivation Tax and Retail Tax. $9.25/Oz and $2.75/Oz are taxed on the cultivation of flowers/buds and leaves (plant trimmings), respectively. On retail sales, the government taxes 15% on GDP. In addition, local authorities could either apply taxes and/or offer benefits to support the growth of the marijuana industry. What does this imply? Multiple millions or billions of dollars in government revenue.
Distribution of Marijuana in California
With the legalization of marijuana in California, there will be a significant increase in production and a corresponding growth in the distribution of the product. Cannabis is widely used in skincare, food, beverage, and other kinds of products. However, the controlled system poses a challenge as regards distribution and delivery. Under present legislation, Marijuana farmers and manufacturers will have to use a third-party distributor. Marijuana will have to pass through a distributor before reaching a retailer This will possibly raise costs in the supply chain or impede the growth of small scale manufacturers. However, it presents an opportunity to increase employment in the rapidly growing marijuana industry. The Importance of distributors cannot be overemphasized. They are saddled with the responsibility of storage, quality control, and prevention of product from entering into the black market.
The recreational use of marijuana in California will bring remarkable growth to the economy of California and US as a whole. The vastness of California’s economy poses a few challenges but presents enormous opportunities for economic growth as regards the legalization of recreational marijuana. With speculations on revenue hitting multiple billions in the next few years, it is clear that the marijuana industry will record remarkable growth, irrespective of regulations affecting its production, distribution, and use.