CALIFORNIA CANNABIS TAX BATTLE
By Mr. MaryJane
Since legalizing cannabis in California for recreational use starting January 1st, 2018, the California Cannabis Control Board has been charging an outrageous tax rate as high as 57% for some cannabis companies. This is toodrastic a tax rate because now the black market is thriving all throughout California and creates an underground market that goes international and to states where cannabis is still illegal. In the words of Margolin& Lawrence, “Colorado took a similar approach when they rolled back cannabis taxes after operators were being pushed into the black market.” As the Washington Post reported, in the immediate aftermath of legalization Colorado’s up-to-33% effective tax rate created a large market for illicit goods: “Camouflaged amid the legal medicinal and recreational marijuana market, the ever-adaptable underground market thrives. Some in law enforcement and on the street say it may be as strong as it’s ever been, so great is the unmet local and visitor demand. California lawmakers are aware of the risks of overtaxation and the resulting effects.”
A recent bill was introduced called AB 3157 which would temporarily remove the state tax on marijuana cultivation. This would also lower the excise tax for the entire cannabis business network throughout California. This bill will be in full effect for 3 years if passed; we shall see the legislative process moving forward. The current rate of tax on cannabis cultivation is $9.25/oz for flowers and $2.75/oz on dry leaves. The tax rates are as follows for these related cannabis industry companies, 57% for retail, 45% cultivation, 35% manufacturing, 35% distribution and 34% for testing.
Operators or cannabis companies are pushing back hard to fix this out-of-control situation which is causing a major rift for all of the companies that came before recreational cannabis. Everyone else startedwith Prop 215 which legalized medical marijuana in 1996 and California was the first to pioneer the movement. Indeed,the Cannabis Control Board is ultimately in control of this situation and legislators in Sacramento. These operators have
been working through a different model for almost 20 years, that is a lotof skin in the game, so naturally the ones that paved the way originally should be having first access to recreational licenses. I have personally heard that manycannabis companies can’t even operate and stay in business, whichis a major problem.
The struggle is that the tax rate is way out of control and hurting cannabis companies that now are trying to stay afloat; cheaper prices and higher tax rates then force companies to raise their prices which cuts retail profits drastically. The problem is that we don’t want cannabis to go so low like Oregon where grams are selling for $1; no one can make money with this kind of over production and overtaxation that create a thriving national and global trafficking black and gray market. We need to learn from our mistakes in the past and apply them to better accommodate the industry to the standards they have been used to. The Cannabis Control Board essentially works for the cannabis business industry, so the industry will dictate how things are controlled.