Dr. Daniel A. Sumner, University of California, Davis
Seminar Title: “Economics of State Cannabis Regulation and Taxation”
Abstract:
About two decades after California had legalized cannabis production, processing, sale, purchase, and possession with a doctor’s recommendation, voters approved legal and regulated “adult use” cannabis in 2016, and scheduled a regulated legal market for 2018. Cannabis sale, purchase, and possession remains prohibited under federal law, with potentially severe penalties. In this paper, we attempt to provide the best possible information on two broad questions. First, what has been the economic situation of the cannabis industry in California including arm cultivation through retailing? Second, what is likely to be the economic situation of the industry after regulation and taxation is fully in place in 2019?
New regulations and taxes disrupt production, processing, and marketing systems. Legal cannabis cultivation and processing operations will benefit from better access to capital, management and security. Licensed cannabis retailers will have access to regulated and tested products and more business security than their unlicensed competitors; but they also face taxes and compliance costs. Customers in the regulated market have a secure, legal environment for purchase of tracked-and-traced and tested products. The cost of these products, however, is likely to be almost double the cost of cannabis from unregulated and untaxed retailers.
We simulate the likely outcomes once taxes and regulations are fully implemented in 2019. We find that almost 80% of cannabis grown in California will remain illegal under both state and Federal law because it will be shipped out of California. Total farm revenue is likely to be about $16 billion, including more than $3 billion within California—about half of which is illegal. Legal retail prices (including taxes) will be about $5,000 per pound and generate about $6.7 billion in revenue, including about $1.8 billion in tax revenue for the state and local jurisdictions.
Thursday, May 17, 2018
2:30pm - 3:45pm
W.B. Young Building, room 327
For more information, contact: John Bovay at john.bovay@uconn.edu