LOS ANGELES — California’s governor on Friday proposed a temporary tax cut for the state’s struggling legal marijuana industry, but businesses said it fell far short of what’s needed to revive a founding pot economy.
Widespread legal sales began in California in 2018, but the industry has been burdened by heavy taxes that can reach as high as 50% in some areas, costly regulation and competition from a thriving illegal market, which industry analysts estimate exceeds the legal size. At least twice that one.
Meanwhile, an influx of cannabis from corporate-scale farms has sent wholesale prices into a tailspin, leaving some growers unable to profit.
California was once seen as a national model for legal sales, but industry leaders warned Democratic Governor Gavin Newsom in December that the state’s licensed industry was headed for collapse and urgently needed to survive. There was a need for tax relief and rapid expansion of retail outlets.
In a proposal to the Legislature for the budget year beginning in July, the Newsom administration recommended abolishing the highly frivolous farming tax, set at $161 on a pound of kale. But to make up for those lost money, the state will increase the excise tax levied on retail cannabis purchases from the current 15% to 19% after three years.
Under the proposal, however, the excise tax may jump soon.
If the state isn’t taking in enough cannabis tax money to support education, law enforcement and a range of other programs — a total of $670 million each year — an excise tax should be rolled out to cover that gap as soon as January 2024. can be extended to. Although it is not necessarily up to the level of 19%. Additionally, the state is putting in a $150 million one-time fund to help cover those costs.
There are other provisions, including about $20 million for grants to communities to accelerate the licensing of retail stores. While cannabis is legal in California, many communities have either banned it or have not established local licensing programs for operating markets. Businesses say there are fewer than 1,000 retail shops, down from about 8,000 before widespread legalization.
Overall, the governor’s proposed changes “will greatly simplify tax compliance, reduce the overall tax burden for our licensees and help stabilize the legal market,” said Nicole Elliott, director of the state’s Department of Cannabis Control.
If approved, the plan would represent the first change in tax policy since the start of a legal sale. However, some taxes, including farming, have increased during that time.
The plan disappointed major businesses, which were demanding an end to the agricultural tax, as well as a reduction in the excise duty levied on retail sales from 15% to 5%, among other changes.
Jared Kiloh of the United Cannabis Business Association, a Los Angeles-based trade group, said the plan would not allow companies to reduce consumer prices that are driving buyers to underground markets, where taxes are not levied and prices are cheaper. .
Without it, the industry will continue to suffer, Kiloh said.
“They’re actually moving some taxes around, and it’s never going to reach the customer,” Kiloh said.
Cannabis is covered by a range of state taxes, and can also be levied at the local level. Currently, state taxes include cultivation tax on buds, leaves and plants, 15% excise duty on retail sales and general sales tax.
The Save California Cannabis Coalition — an industry group — said in a statement that Newsom’s proposal puts California’s “death market in handcuffs for repressive taxes.”
Lindsay Robinson of the California Cannabis Industry Association saw the plan as an early step that didn’t do enough to crack down on illegal sales. “It’s kicking the can down the road,” she said.
There will be no quick fix. Speaking to reporters in Sacramento, Newsom said the proposal marked “the beginning of a process” to force illegal operators to back down, which would take years.
The proposal is subject to review in the Legislature, where it can be amended.
Cannabis is illegal at the federal level, although most Americans live in states with at least some access to legal marijuana.