Early cannabis numbers show no great haul for state coffers
We’re only seven weeks into retail sales of cannabis to folks without a medical condition so it’s way too soon to exhale any conclusions about how much tax money this new market will generate for the state.
Still, the early returns — about $300,000 per week in state sales tax revenue — tell us a lot will have to happen before we see any ganja gold rush. It’s going to be a long time before the direct sales tax revenues from this new industry pay for all state costs.
“The Krispy Kreme moment that everyone thought the state was going to have ... it’s a little bit behind our projections,” said Ray Pantalena Jr., managing partner at Affinity Dispensary in New Haven. “Expectations were set a bit high.”
Expectations by the state, that is, for revenues.
That pretty much echoes what I heard from Ben Zachs, chief operating officer at Fine Fettle, with hybrid medicaladult use stores in Newington, Willimantic and Stamford and the state’s first pure recreational, social equity retailer in Manchester.
“Do I wish sales were higher? Yes. Do I wish there was more demand? Yes. Do I think we are moving in a positive direction and this is only going to get better? One thousand percent yes,” Zachs said.
It’s a tough market for lots of reasons — regulations, nearby supply in adjacent states and consumer habits — though these two Connecticut-based sellers are both upbeat about the launch so far, and are both planning more locations in the coming months.
Here’s what the numbers show since taxable retail sales started Jan. 10:
Total sales of so-called adult-use cannabis came in just under $1.5 million per week in the first couple of weeks, then grew to $1.86 million in the last full week of February, the most recent week reported. So the gains are decent, reflecting an increase in the number of stores from seven on the first day to ten at the start of March.
Through January and February, adult-use sales, aka recreational, totaled $12.1 million. Total sales including medical reached $31.6 million but we don’t care about medical for tax purposes because it’s taxfree.
The average state tax on weed and related products — gummies, concentrated tinctures, vape and the like — amounts to between 17 percent and 20 percent of the price, not including a 3 percent tax that goes to the host towns and cities. That’s the basic sales tax of 6.35 percent plus a cannabis levy that varies depending on the strength.
At 18 percent, that means the state should have collected $2,183,246 in the first seven weeks of the market — or $312,000 per week. We don’t have actual collection data past January because payments lag.
That comes out to $16 million a year, which is less than the roughly $26 million the state projected and certainly less than the $45 million or so “whisper number,” as they say on Wall Street to describe what some people consider realistic hopes. By year 3, state forecasts have revenue in the range of $75 million.
So where does that leave us? In one way of seeing it, we’re right on track and then some. With 11 stores now open, we’re set to see many more charge up their cash registers in 2023 — including Affinity in Bridgeport and more Fine Fettle locations.
As of Wednesday the state Department of Consumer Protection had given out 47 provisional retail licenses of various sorts.
If a hefty number of them do open, and if they see similar same-store sales as the ones now in business, we’ll be high on new tax revenue. Will that happen? It’s a slog.
“It takes time, it takes geographic diversity,” Zachs said. “We’re trying to do something that is bigger than running a business. We’re trying to change stigma about a plant.”
And they’re trying to do it in a time and a place that has full retail in all three adjacent states. New York, just getting underway, is choking in illegal stores, let alone the already mature underground market in the city. Massachusetts has so many stores, and so many cultivators, that prices have collapsed and some have already closed.
“They’ve really diluted the market,” Pantalena said.
Will that happen here? Back in January and early February, supply from the four existing producers lagged for some goods, such as gummies. Now it’s catching up but launching a new industry requires exquisite balance between supply and demand if the engine is to work.
“It’s a very fine balance and no state has really found the right equilibrium,” Zachs told me.
Adding to the constraints, Connecticut has strict rules that make a store seem more like a pharmacy counter than fun, traditional retail with open counters and products out and around. “We can’t show product on the floor, we can’t have people smell it,” Zachs said. “I think it probably has a negative impact on the customer experience, sure.”
We should look for two things this year: First, some slight loosening of the retail rules now that we see that operations are going smoothly. We don’t have to go all Colorado or anything, just some easing.
And second, the state should have absolutely no more lotteries for retail or cultivation licenses until this market shakes out — at least until 2024.
To be clear, Gov. Ned Lamont has said over and over that this is not about making money for the state. It’s about social justice. Still, the program calls for tens of millions of dollars in grants to targeted communities and it’s still unclear whether that’s going to be realized.