Good morning. Today, the industry can learn a big lesson about cannabis taxes: they don’t always go up. And when they start going down, it spells financial trouble for the projects, services, and spending that these taxes cover. So, caveat tax man.
A 6 minute read by JB and JR
Cannabis taxes aren’t everything
Driving the news: Despite initial expectations, Colorado's cannabis taxes have not resolved the state's budget problems.
Since legalizing in 2014, Colorado has collected over $2.3 billion in cannabis taxes. But, this is only a small portion of the state budget, accounting for just 0.7% last year, and less than 5% of what the state spends on education alone.
What’s happening: The growth in cannabis tax revenue has recently seen a downturn — along with the rest of the industry. After peaking during fiscal year 2020-2021 due to pandemic-driven sales, revenue has declined significantly.
Tax revenue dropped from $425 million in the 2020-21 fiscal year to $282 million in the last fiscal year, according to Colorado Public Radio.
Cannabis in Colorado is subjected to a 15% sales tax and a 15% excise tax, with the excise tax funding school construction grants through the Building Excellent Schools Today (BEST) fund.
Why it matters: The distribution of cannabis tax revenue is strategically allocated in Colorado — and when cannabis sales go down, so too do the associated cannabis taxes.
So let regulators beware, when you set taxes on cannabis and bank on that sweet, sweet cannabis revenue stream, know that sometimes sales (and tax revenues) head in the other direction, like they’ve done in Colorado.
Ontario’s cannabis piggy bank is full
Driving the news: The Ontario Cannabis Store (OCS), a government-owned wholesaler in the Ontario, was reported to have a significant cash stockpile of over $500 million Canadian as of March 31, 2023, MJ Biz Daily reports. (That’s equivalent to about $370 million US).
This has raised the obvious questions about why the OCS held onto such a large amount of money without distributing some back to the provincial government earlier.
Wait, what?: The OCS has only recently started paying dividends to the Ontario government, which has led to a decrease in the cash stockpile.
However, it still retains hundreds of millions in cash, marking it as the most profitable cannabis operation in Canada — and perhaps the entire world.
Why it matters: The OCS's financial handling is significant as it reflects the complexities and challenges of managing finances in the emerging legal cannabis market.
The delay in dividend payments — which only started in late September 2023, nearly five years after recreational cannabis was legalized in Canada — and the lack of transparency regarding the use of the cash stockpile, raises questions about fiscal responsibility and governance in public enterprises.
THE OHIO STATE UNIVERSITY RULES
Legal cannabis, just not on Buckeye campus
Driving the news: The Ohio State University updated its campus community regarding the impact of Ohio's legalization law that went into effect last week.
What’s happening: Despite the state's legalization, Ohio State's policies remain stringent due to federal regulations. The university prohibits the possession or use of cannabis on all its properties, including residence halls, offices, and medical center facilities.
Why It matters: The university's adherence to federal law highlights the complex interplay between state and federal regulations regarding cannabis use.
So, until the federal government changes itstheir stance on cannabis, the students at The Ohio State University will have to refrain from cannabis use, which the Cultivated team is certain they will continue to do.