California’s cannabis is deep in the red, but unfortunately for the state, most of those debtors are already out of business.

That’s according to a new report from Greenwave Advisors that determined that the state of California is owed approximately $732 million in cannabis sales & use, excise, and cultivation taxes, but about 72% of the companies that owe simply don’t exist anymore.

Greenwave said it reached that conclusion by analyzing data on delinquent taxes provided by the California Department of Tax and Fee Administration. In addition to the uncollected taxes, the CDTFA said it also assessed $173 million in taxes on unlicensed sales, which Greenwave says translates to $1.2 billion in sales through unlicensed channels, or a quarter of the total market.

California reported $4.4 billion in sales in 2023, a 16% increase over 2022’s $3.8 billion.

Distributors also likely owe the state $1.2 billion in taxes, which Greenwave said is higher than its previous estimate of $1 billion.

In September, one of California’s largest distributors Herbl went out of business. At the time Green Market Report wrote that vendors complained about not getting paid by the distributor, which in turn was allegedly being stiffed by strapped dispensaries after taking inventory. Herbl filed several collections claims in the Los Angeles County Superior Court against operators.

Greenwave surmises that if the distributors aren’t getting paid, then the taxes likely won’t get paid either.

High and higher taxes

According to Cova Software, “Between California’s excise tax, regular sales tax, and local business tax, adult-use customers are paying anywhere between 28% and 40% cannabis retail taxes on every purchase.”

The main excise tax of 15% is set to increase to 19% in 2025. It isn’t hard to imagine that if companies can’t pay the taxes they have now, increasing them will only amplify the problem.

Tax man cometh

If companies don’t pay the tax bill and the accompanying 50% penalty for late or missed payments, their properties can be seized. But the results of those actions often fall far short of the actual debt.

For example, the CDTFA held an auction in February to sell property seized from 10 cannabis businesses in Los Angeles. The department noted on its website that the items were seized as a result of search warrants served to collect taxes owed by 10 cannabis businesses. Nine were illegal businesses, and one was a legal dispensary with unpaid taxes.

That auction generated only $2,075 against the unpaid $14.4 million in taxes.

In April, the state announced it had also seized products from the Kush Spot and Verlton Glaspie, which does business as Whittiers Cure Cannabis Dispensary, for unpaid taxes.

“Seizing and auctioning property from cannabis businesses that evade the law is a tool to recover the taxes owed to the state,” said CDTFA Director Nick Maduros.

Topline

Amazon will begin delivering packages by drone in Phoenix later this year, the company announced Monday, marking the latest expansion for its new but still fairly small drone delivery program—though California’s drone service will be ending this year.

Key Facts

Big Number

Two. That’s how many places Amazon will be offering drone delivery once the Arizona site opens. The company began testing drone deliveries in College Station, Texas, and Lockeford, California, in 2022. Though the California option is closing, Amazon said it will continue drone delivery in Texas and “will open further U.S. locations in 2025.”

Surprising Fact

The most popular item ordered through drone delivery is AA batteries, Amazon said in a release last October. Beauty and drugstore products are also offered as some of the thousands of products available weighing less than five pounds.

Key Background

Prime Air was first outlined by Amazon founder and chairman Jeff Bezos in 2013 as a service that would allow for products to be taken from an Amazon warehouse to someone’s home in less than 30 minutes. It took the service nearly 10 years to be ready to launch, though, and just after it did, the Prime Air division was hit with layoffs, CNBC reported. The service remains small: Last May, Amazon told CNBC it made just 100 drone deliveries that year across its two markets, despite predicting it would deliver 10,000 deliveries by the end of that year. In October, Amazon revealed its newest Prime Air drone, the MK30, which is still in flight testing as of April. The new drone is quieter, can fly further than the current drone being used and “can operate in more diverse weather conditions, including light rain,” the company said. The MK30 drones are scheduled to replace Prime Air’s current drones by the end of 2024.

What We Don’t Know

Exactly when drone delivery will start in Arizona. Amazon simply said “later this year” when announcing the program’s expansion to the Phoenix area. Amazon said it is working with the Federal Aviation Administration and local officials and will begin reaching out to customers when it has received all the needed approvals.

Further Reading

MORE FROM FORBESJeff Bezos
The VergeAmazon is shutting down its drone delivery service in California as it looks to other markets

California residents should know how much of their tax dollars are going to big-box retailers, local businesses, and the consultants who broker revenue-sharing deals with cities. That’s why a bill moving through the state legislature is such welcome news.

The measure, A.B. 2854, focuses on the transparency of information that’s now accessible to the state, local districts, cities, and residents related to monies that are part of shared agreements between a few dozen California cities and either large retail chains or other businesses. The bill is now before the legislature’s Appropriations Committee.

These agreements send millions of dollars annually to some of the world’s largest retailers, including Apple Inc., Best Buy Co. Inc., and Walmart Inc. California cities would have to disclose how much sales tax revenue they give to the retailers, as well as how much the cities are receiving as a boon to themselves from these deals.

The funds used to broker these deals are considered public monies because, if they weren’t part of the deal, they could be used for public facilities, public roads, and so on. Local constituents and business owners are told where their taxes and the public funds are going. These transactions should be no different.

The funds that these cities are distributing and receiving affect not only that specific city, but also the localities and their constituents around that city. Neighboring towns and their businesses should know how many dollars and what related agreement terms are involved so they too can decide how to incentivize their city with local and national retailers.

One potential argument against A.B. 2854 is that information on tax-sharing agreements should be withheld from all individuals and businesses due to growing tension and resentment by cities and businesses that aren’t part of these deals.

But those individuals, localities, and businesses already know these agreements exist and that cities and retailers are getting exorbitant amounts of monies handed to them for these deals.

Showing the true nature of these agreements won’t deter any existing tension and resentment. Instead, it would allow uninvolved businesses or cities to determine how to best use a similar agreement and relationship to benefit themselves as well.

It is unreasonable to assume that individuals and businesses would be willing to accept limitations on accessing data related to public funds—not when those limitations could hinder possible attempts to improve their state, their localities, and their livelihoods.

These retailer tax-sharing agreements and their related data bring local windfalls by creating jobs and an influx of monies necessary to bettering the community and its individuals. Allowing the data from those agreement to become fully available and accessible is beneficial to all.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Lauren Suarez is an attorney at RJS Law with focus on federal and state tax controversy matters.

Allison Soares is a tax attorney at Vanst Law who focuses on audits, collections, appeals, international disclosures, and all other tax problems.

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