Tag Archives: marijuana

What Happened To The $1 Billion Tax Revenue Expected From Licensed Marijuana Sales In California?

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A customer shows his receipt for recreational marijuana in Berkeley (KTVU.com).

$1 billion: that’s how much California initially anticipated receiving in annual tax revenue by legalizing the sale of recreational marijuana. Here’s what actually happened:

  • CA will likely bring in just under $500 million in marijuana tax revenue this fiscal year.
  • That’s lower than the $630 million forecasted in former Governor Jerry Brown’s budget.
  • Current Governor Gavin Newsom’s new budget projects the state will generate $355 million in marijuana excise taxes by the end of June according to press accounts.

That is worse than underwhelming. Consider that Washington State received $319 million in legal marijuana taxes and license fees in fiscal year 2017, while Colorado collected $247 million in 2017. They have populations of just 7.5 million and 5.7 million respectively. California is the largest US state with nearly 40 million people.

Why is this important? There was a wave of Democratic gubernatorial candidates that ran on legalizing recreational marijuana to boost state tax revenue in the last midterm elections. Many of them won and are trying to pass a bill through their state legislatures as soon as this year. These include: New York, Illinois, Connecticut, Minnesota, New Mexico, and New Jersey.

If new states want to legalize retail cannabis sales and meet their respective tax revenue goals, they need to heed the lessons of California and public equity investors in the space likewise should understand the issue as they assess the size of the addressable market here. Marijuana legalization in the US is far more complex than either group likely realizes.

With that said, there’s three major issues at play in California:

#1 – The taxes are too high, allowing the black market to remain relevant. Fitch predicted this consequence in 2017: “California’s high cannabis taxes will encourage black market sales and limit potential local government revenues from this new market… Effective tax rates on nonmedical cannabis will be as high as 45% when accounting for both state and local levies… By comparison, Oregon taxes nonmedical cannabis at approximately 20% and Alaskan taxes range from 10% to 20%.”

The upshot: Colorado, Washington and Oregon all had to reduce their marijuana tax rates after legalization to better compete with the black market. California should follow suit, but other states should learn and get it right out of the gate.

#2 – California may have legalized the sale of retail cannabis, but most cities still prohibit it. Fewer than 20% of cities in the state allow stores to sell recreational marijuana (89 out of 482). For example, 93% of Los Angeles County’s 88 cities ban retail sales. One solution that’s supposed to go into effect: businesses will be allowed to deliver anywhere in the state aside from public land in the hopes that people use those services rather than buy from the black market in communities where they don’t have access to legal adult-use sales.

#3 – The regulations are too onerous and complicated. There are a lot of problems here, so we’ll just highlight a couple.

  • The Bureau of Cannabis Control has issued about 550 temporary and annual licenses to marijuana retail stores compared to initial projections of upwards of 6,000 in the first few years. To put this in perspective, the Los Angeles Times reports that “some 1,790 stores and dispensaries were paying taxes on medicinal pot sales before licenses were required starting Jan. 1.”
  • Why haven’t they issued more licenses? Marijuana businesses need a local license before getting one from the state. That’s tough to do when retail sales are banned in most cities. Obviously, this is not an issue for the black market, which is not restricted by location or burdened by regulatory and compliance costs.
  • Moreover, California’s marijuana market is still governed by a slew of emergency regulations. The Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture have tweaked these regulatory provisions over the past year, and are still working on final non-emergency regulations to adopt. In the meantime, marijuana businesses have been left confused and forced to adapt to regulatory changes, such as different labeling requirements on marijuana products.

To sum up, we’ve covered the legal retail marijuana industry since its infancy five years ago and remain enthusiastic about its prospects. That said, California is a key example of how the same regulations that made the recreational cannabis market possible can also hurt its growth. The right deregulation will ultimately drive growth rates for the industry and valuations for public pot companies over time. This is why it is taking so long for New Jersey, for example, to legalize retail marijuana sales through its state legislature. Lawmakers have the benefit of learning from states like California that missed the mark, even with the tailwind of an entrenched medical market with existing infrastructure and a distribution pipeline.

The bottom line for investors in public pot stocks: pay attention to state and local tax rates and regulations as new markets open up because this under appreciated factor will profoundly affect the industry’s total addressable market.

Source: ZeroHedge

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Feds Seize 100 NorCal Residential Pot Grow Houses

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Federal and local law enforcement officials said this week they have seized around 100 Northern California houses they say were being used to grow cannabis tied to criminal organizations based in China.

The raids conducted Tuesday and Wednesday focused on Chinese nationals living in other states who bought homes in seven California counties, the Associated Press reported. Most of the home buyers were legal residents of the United States. They lived as far away as Georgia, Illinois, New York, Ohio and Pennsylvania. The harvested and processed product was shipped back east to those states for distribution.

None of the home owners have been arrested yet. The U.S. Department of Justice called the bust one of the nation’s largest residential forfeiture seizures. None of the homes were in the San Francisco Bay Area, presumably because it’s cheaper to buy a home more inland, the AP report said.

“This criminal organization has put a tremendous amount of equity into these homes through these wire transfers coming in from China and elsewhere,” U.S. Attorney McGregor Scott said in an interview with AP. “We’re going to take it. We’re going to take the houses. We’re going to take the equity.”

More details from the AP:

  • More than 500 law enforcement officials were used in the raids, which also hit two real estate businesses in Sacramento.
  • Agents from the Internal Revenue Service, the Drug Enforcement Agency and the Federal Bureau of Investigation were deployed with Sacramento sheriff deputies.
  • Money for home down payments were wired from China’s Fujian Province and stayed below the $50,000 limit restrictions in that country.
  • Sacramento real estate agents were used as well as straw buyers who represented the homeowners.

The Justice Department said the houses tended to use very high amounts of electricity for grow lights and fans. It’s no wonder the sweep was dubbed “Operation Lights Out.”

It said in addition to the homes, agents hauled in 61,000 marijuana plants, 400 pounds of processed buds (worth $600,000 wholesale) and 15 guns.

Worries about competition from a thriving black market in the state have continued to increase since California legalized recreational, retail cannabis and started taxing it at high rates last January.

A report earlier this week found that state and federal taxes on legal cannabis are so high in California that they may be helping the black market thrive, as consumers look for cheaper sources for cannabis and retail businesses scramble to keep in line with regulations while still making a profit.

By Riley McDermid | San Francisco Times

You Can Now Buy Weed-Infused Wine In CA

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(True Activist) As consumers become more educated on the benefits of marijuana — both recreational and medicinal, it continues to be decriminalized at an increasing pace. So far, 29 states (and DC) in the United States have legalized cannabis for medicinal use and eight for recreational. With the freedom to cultivate the herb and utilize it in numerous ways, entrepreneurs have started experimenting with cannabis and infusing it into a variety of edibles — such as baked goods, candies, soda and now… wine.

That’s right, cannabis-infused wine (otherwise known as Canna Vine) is finally available for sale in California. According to the Los Angeles Times, the beverage is made from organically grown marijuana and bio-dynamically farmed grapes. Because the product is low in THC — the primary psychoactive compound found within cannabis — it delivers a mellow “body high” without large effects.

The innovative wine was developed by cancer survivor Lisa Molyneux, who owns the dispensary Greenway in Santa Cruz, and Louisa Sawyer Lindquist, who owns Verdad Wines in Santa Maria. Molyneux, particularly, was inspired to invent the wine to aid fellow cancer survivors.

 

There’s a reason Canna Vine costs anywhere from $120 to $400 for half a bottle. The process to make the product begins with one pound of marijuana. After the weed is wrapped in cheese cloth, it is added to a barrel of wine where it sits for approximately one year to ferment and repose.

Though the concept of cannabis-infused wine is nothing new (in ancient China, it was prescribed for pain relief), the fact that it can be legally procured in the modern age is.

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The founders of Canna Vine are presently experimenting with the green wine (literally) to find the best balance of Sativa and Indica. Their ultimate aim is to sell a wine that creates “uplifting and relaxing sensations.”

Said Molyneux,

“What’s nice about it is how subtle it is. There’s a little flush after the first sip, but then the effect is really cheery, and at the end of the night you sleep really well. It really is the best of both worlds; you get delicious wines with medicinal benefits.”

Melissa Etheridge, — a prominent advocate of Canna Vine — credits the beverage with helping her through chemotherapy. She said,

“When I was in my deepest, darkest, last throes of chemo,” says Etheridge, “I couldn’t smoke or use a vaporizer — and I was never really an edibles eater; I didn’t want to be ‘out of it.’”

“It lands in a really beautiful place,” she added.

What’s the catch?

First of all, the infused wine is only legal to purchase in California. Second, one needs a medical marijuana license to purchase the product.

California is presently the only place one can procure alcohol infused with weed. Even states like Washington, Oregon, and Colorado don’t allow the combination to be produced or sold.

Presently, both Molyneux and Lindquist seek to refine the wine to position themselves in the market of high-quality cannabis-infused products. Said Lindquist,

“Cannabis wine has been so effective as a stress reliever, as a mood elevator, and as a medicineI have no idea what the market will be like for it, but whatever I make I want to be safe, made from pure ingredients and, hopefully, delicious.”

Source: New World Order Report

Wanted: Licensed Contractors To Build In-house Marijuana Grow Rooms

People want to grow at home, but it’s not always safe

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Grow closets could become the new hot amenity in home construction

Medical marijuana is legal in more than 20 U.S. states, and places like Colorado, Washington, Oregon, Alaska and Washington, D.C., have decriminalized recreational marijuana use for adults over the last few years. Marijuana advocates say this has led to an expanding industry in the home remodeling business: creating rooms in homes in which to grow pot.

But finding a contractor who would be willing to put a “grow room” into a home was nearly impossible until recently. Such rooms need, among other things, high-voltage metal halite electric lamps, high-capacity intake and exhaust fans to maintain carbon dioxide and oxygen levels, along with the proper heavy-duty electrical wiring and plumbing in a suitably-sized room.

“No contractor would touch stuff like this a year ago,” said Eli Bilton, the chief executive of the Attis Group, an online marijuana supply company in Portland, Ore. “They didn’t want to be on a job site where cannabis plants were around,” he said.

So people who wanted to build a grow room had to learn how to do it themselves, or pay somebody to do work without the proper permits.

Fire investigators say grow rooms in homes, especially those built by amateurs without licensed contractors are a hazard. Some operations contain 800 to 1,000 pot plants in a 2,500 square foot home. Post legalization, many amateur pot growers continue to rig their homes with unsafe grow rooms while hoping to get rich quickly, said Bilton. “They don’t engineer and design correctly,” he said.

A single home of that size could produce enough pot in a year to net as much as $1.5 million once it’s harvested and sold according to Victor Massenkoff, an arson investigator with the Contra Costa County Fire Protection District in Pleasant Hill, Calif., about 20 miles east of San Francisco. California accounts for nearly half of the sales of pot in the U.S., according to ArcView, a San Francisco-based marijuana industry research firm.

Dave Perry, a property loss insurance lawyer from Littleton, Colo., said the increased use of electricity is the primary cause of most fires, as most home growing operations need as much as 600 amps of power, where a typical home only uses about 200 amps of power. And without a licensed electrician, a house could be rewired improperly, resulting in an overload. In Colorado, a year after marijuana was legalized in 2012, there were 20 marijuana-related fires, which jumped to 32 in 2014, and 50 in 2015, according to Perry.

Even more dangerous is the spread of something called hash oil or “honey butane oil,” which is a super concentrated oil containing 95% tetrahydrocannabinol, or THC, the drug that creates the high in marijuana. A one-inch vial of honey butane oil can sell on the streets for as much as $4,000 and cost as little as $100 to produce. But the drug needs large amounts of highly flammable butane to produce and has led to explosions and fires in homes when the butane finds an ignition source in a home like a pilot light, says Massenkoff.

Still, experienced contractors who work within the building code and permits process are beginning to build grow rooms in high-end developments, which can cost up to $2,000 to complete.

Bilton says that in Oregon many licensed contractors will build grow rooms now that marijuana is legal. “It’s becoming part of our culture here in Portland,” he said. “You’re more likely to know somebody who’s involved in the growing industry so it’s more acceptable now,” he said.

For example, in Washington, D.C., after voters in the District approved an initiative in November 2014 that legalized recreational marijuana use for adults beginning this February, Eric Hirshfield, a real estate developer, is adding grow closets to some of his condominium projects.

Hirshfeld said he used a licensed electrician to beef up the wiring for the lighting and the exhaust fans as well as plumbers to ensure the proper drainage. He also ensures that the closets are built small enough to hold just six plants, the maximum allowed by D.C. law.

“I like to include a unique amenity in each of my condo projects like a wine cooler or a dog washing station and this year the grow closet is the hot amenity for 2015,” Hirshfield said in an interview. “It’s a sign of the times,” he said.

by Daniel Goldstein in Marketwatch

Denver Tops New List of Hottest Housing Markets

https://richmerritt.files.wordpress.com/2012/03/la_skyline_mountains2.jpgby Phil Hall

The hottest single-family housing markets in the nation are located across the Southwest and the South, according to the latest data released by Auction.com.

Among the nation’s 49 largest markets, Denver topped the list when it came to a combination of strong housing demand and favorable affordability coupled with a vibrant economy and demographic conditions. According to Auction.com, Denver experiences a 9.2 percent year-over-year home price growth and a 4.6 percent year-over-year home sales growth.

But why Denver, of all places?

“I’m tempted to tell you it is a Rocky Mountain high,” said Rick Sharga, executive vice president at Auction.com. And while Sharga admitted that the legalization of recreational marijuana in Colorado has helped to boost Denver’s tourism and hospitality industries, the city is enjoying a sturdy economic growth in the professional services sector. “They have exceptional job growth, about three times the national average.”

Rounding out the top 10 for the strongest markets are San Antonio, Nashville, Fort Lauderdale, Dallas, Fort Worth, Seattle, San Francisco, Phoenix and Charlotte. Conspicuously absent from the upper level of strong markets were Northeastern cities—the highest ranked on the Auction.com list was Boston in 34th place.

“We are seeing sort of the opposite of what we’re seeing in the South or Southwest,” said Sharga about the Northeast’s economic health and housing environment. “The population growth is flat or negative and there is not a lot of the job growth that we see in other markets.”

As a national whole, Sharga stated that housing has seen and hopes to see better days. “We’re off to a worse than expected start,” he said of the 2015 housing picture. “I expect a fairly healthy spring, approaching five units in sales. But we should be in the area of six units in sales.”