California Gov. Gavin Newsom on Friday proposed a temporary tax cut for the state’s struggling legal Cannabis industry, reports KTLA. But the plan falls far short of what’s needed to revive a struggling adult-use weed market, according to some marijuana businessowners.
Adult-use Cannabis sales began in California back in 2018. But hefty taxes approaching 50% in some areas burden the nascent industry. It doesn’t help any that there’s also costly regulation and stiff competition from a thriving untaxed market. Industry analysts estimate the untaxed market at least twice the size of the legal one.
Meanwhile, a glut of cannabis from corporate-scale farms has sent wholesale prices into a tailspin, leaving some growers unable to make a profit.
Wasn’t First; May Be Worst
California was once imagined as a national model for legal sales. (Mind you, that was mostly before Washington and Colorado became the first two states to legalize in 2012.) But industry leaders warned Democratic Gov. Gavin Newsom in December the state’s adult-use industry was verging on collapse. They asked for expedited tax relief and a speedy expansion of retail outlets to survive.
Newsom recommended the California Legislature eliminate the unpopular cultivation tax. That tax is $161 per pound on buds. But that doesn’t come without a shell game to make replace those lost funds. After three years the excise tax imposed on retail marijuana purchases leaps to 19%, up from the current 15%. But an excise tax jump could come even sooner.
If there’s not enough marijuana tax money to support education, law enforcement and other programs — totaling $670 million annually — the excise tax could be stepped up to cover that gap. That could happen as soon as January 2024, though not necessarily to the 19% level.
Simplify, Reduce Tax Burden, Stabilize Legal Market
The tax debate presents a dicey political challenge for Newsom, who is seeking a second, four-year term in November. Struggling weed business wanting a deep tax cut are pressuring the governor. But youth and other organizations benefiting from the cash windfall certainly don’t want to see that green river dry up.
The Newsom plan also includes $20 million for community grants to accelerate retail pot shop licensing. While weed is legal in California, many communities either ban it or don’t set up local licensing programs. There are fewer than 1,000 shops left, down from about 8,000 medical dispensaries before adult-use legalization kicked in, businesses say.
Overall, the governor’s proposed changes would “greatly simplify tax compliance, reduce the overall tax burden for our licensees and help stabilize the legal market,” said Nicole Elliott, director of the California Department of Cannabis Control.
“All They Are Really Doing Is Shifting Some Taxes Around”
If approved, the plan would represent the first change in marijuana tax policy since legal sales kicked off. However, some taxes, including cultivation, increased during that time.
The plan disappointed leading businesses. They wanted elimination of the cultivation tax, along with a cut in the excise tax imposed on retail sales to 5%, down from 15%.
Jerred Kiloh of the L.A.-based trade group United Cannabis Business Association, said the plan doesn’t help companies reduce steep consumer prices. In the untaxed underground market, prices are lower.
And it’s even possible the plan could result in higher costs for consumers at the retail counter, Kiloh said. “All they are really doing is shifting some taxes around, and it’s not ever going to get to the customer,” he added.
“Kicking The Can Down The Road”
There are a number of California state taxes on Cannabis. Municipalities can add their own levies. Currently, California weed taxes include a cultivation tax on buds, leaves and plants, the 15% excise tax on retail sales, and the usual sales tax.
Lindsay Robinson of the California Cannabis Industry Association viewed the plan as an initial step. She said it doesn’t do enough to crack down on illegal sales. “It’s kicking the can down the road,” Robinson said.
There will be no quick solution. Newsom told reporters his proposal would take years. He said it marked “the beginning of a process” to force illegal dealers into retreat.
Legislature Could Modify The Newsom Plan
The proposal is subject to review in the California Legislature, where it could be modified.
Marijuana remains illegal at the federal level. But most Americans live in states with at least some access to medical or adult-use Cannabis.
It’s difficult to make state-by-state comparisons on Cannabis tax burdens. That’s because many different approaches are used. Some states limit sales only to medical marijuana.
In Washington state there is a 37% excise tax on adult-use legal sales. New York opened its door for adult-use sales last year. The levies there includeh a tax based on the level of THC, marijuana’s active ingredient.