Everything You Should Know About California's $1 Billion Marijuana Vote

By Markets Fool.com


Image source: Getty Images.

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What's being voted on

Today, millions of California voters will be heading to the polls to decide the fate of recreational marijuana. The initiative, known as Prop 64, would add a 15% tax at the retail level on consumers ages 21 and up, but would also levy a cultivation tax of $9.25 per ounce on flowers and $2.75 per ounce on cannabis leaves. If pot is approved, pundits have suggested that $1 billion in aggregate tax revenue could be collected annually by California solely from recreational marijuana.

California was the first state to approve a medical marijuana law back in 1996.

What the polling suggests

Early indications would suggest that California has a very good chance of passing Prop 64, which requires a majority vote of 50% to be approved. A recent survey of likely voters conducted by Field Poll and UC Berkeley's Institute of Governmental Studies found that 57% of respondents favored approval compared to just 40% who did not. Another poll conducted this past week by USC Dornsife/Los Angeles Times showed that 58% of likely voters support approving Prop 64, with 37% opposing it.

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Interestingly enough, some of the loudest opponents of the law are the growers themselves. Aside from the aforementioned per-ounce taxes on cannabis flowers and leaves, growers oppose the idea of "regulatory inspections," which they deem unnecessary, and they dislike the fact that California could begin selling Type 5 cultivation licenses in 2023 to large businesses. The pot industry has done its best to keep out big business, but California's Type 5 licenses could be akin to a welcome mat.


Image source: Pixabay.

What's at stake

An approval of Prop 64 would be the crown jewel for the marijuana movement. California represents the eighth-largest gross domestic product (GDP) in the world. If the pot industry can succeed within that state, it would be a major step forward to perhaps a nationwide legalization someday.

The purported $1 billion in tax generation from an approval would dwarf Colorado, which is arguably the "green standard" of the marijuana industry. Colorado generated $135 million in tax and licensing revenue from marijuana in 2015.

However, it's also important to note that a nationwide legalization is likely many years off, if it were ever to occur. The U.S. Drug Enforcement Agency recently passed on its opportunity to reschedule marijuana, meaning expansion is going to be determined and constrained at the state level.

Even if California is seeing green after this election, it's unlikely that investors will. The cannabis industry is still highly fragmented, and it's facing a number of inherent disadvantages that includes minimal access to basic banking services and unfair tax treatment because it's selling an illicit substance. Though the marijuana industry seemingly opposes big business, it will likely become investment-worthy only when we see consolidation and the entrance of big business.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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