Tax cut for the California pot industry: too little, too late?

A grower from Loving Kindness Farms tends to a crop of marijuana seedlings in Gardena, California in 2018. Richard Vogel/Associated Press, file

LOS ANGELES — California’s governor offered a temporary tax cut Friday for the state’s struggling legal marijuana industry, but companies said it fell far short of what was needed to revive a pot economy in disrepair.

Extensive legal sales began in California in 2018, but the industry has been burdened by heavy taxes that can approach 50% in some areas, costly regulation and competition from a thriving illegal market, which analysts say industry, is at least twice the size of the legal market. a.

Meanwhile, a glut of cannabis from corporate-scale farms has driven down wholesale prices, preventing some growers from making a profit.

California was once seen as a national model for legal sales, but industry leaders warned Democratic Gov. Gavin Newsom in December that the state’s licensed industry was on the verge of collapse and needed immediate tax relief and rapid outlet expansion to survive.

In a proposal to the Legislature for the budget year that begins in July, the Newsom administration recommended eliminating the much-despised grow tax, which is set at $161 per pound of bud. But to make up for those lost funds, the state would raise the excise tax on retail cannabis purchases to 19% after three years, from the current 15%.

Under the proposal, however, an excise tax jump could happen sooner.

If the state does not raise enough money from cannabis taxes to support a range of education, law enforcement and other programs – a total of $670 million per year – the tax could be increased to fill this gap as early as January 2024, but not necessarily to the level of 19%. Additionally, the state is setting up a one-time fund stream of $150 million to help cover these costs.

There are other provisions, including about $20 million for community grants to expedite the licensing of retail stores. Although cannabis is legal in California, many communities have banned it or have not implemented local licensing programs for markets to work. There are fewer than 1,000 retail stores, down from around 8,000 before wide-scale legalization took effect, the companies said.

Overall, the governor’s proposed changes “would significantly simplify tax compliance, reduce the overall tax burden for our licensees, and help stabilize the legal market,” said Nicole Elliott, director of the State Department of Comptrollership. cannabis.

If approved, the plan would represent the first tax policy change since legal sales began. However, some taxes, including culture, increased during this period.

The plan disappointed major businesses, which sought to eliminate the cultivation tax, as well as a reduction in the excise tax imposed on retail sales to 5%, from 15%, among other changes.

Jerred Kiloh of the United Cannabis Business Association, a Los Angeles-based trade group, said the plan would not allow companies to reduce high consumer prices that have driven buyers to the underground market, where taxes are not not imposed and the prices are cheaper.

And the plan may even result in higher costs for consumers at the counter, Kiloh warned.

“All they’re really doing is moving some taxes around, and that’s never going to happen to the customer,” Kiloh added.

Cannabis is covered by a range of state taxes, and it may also be taxed locally. Currently, state taxes include a cultivation tax on buds, leaves, and plants, the 15% excise tax on retail sales, and the usual sales tax.

The Save California Cannabis Coalition — an industry group — said in a statement that Newsom’s proposal keeps California’s “dying market handcuffed to oppressive taxes.”

Lindsay Robinson of the California Cannabis Industry Association saw the plan as a first step that did not do enough to crack down on illegal sales. “It’s kicking the box on the road,” she said.

There will be no quick fix. Speaking to reporters in Sacramento, Newsom said the proposal marked “the start of a process” to force illegal operators to retreat, which would take years.

The proposal is subject to the consideration of the Legislative Assembly, where it could be modified.

Cannabis remains illegal at the federal level, although most Americans live in states with at least some access to legal marijuana.

It is difficult to make state-by-state comparisons of marijuana tax burdens because many different approaches are used and some states limit sales to medical marijuana only. In Washington State, there is a 37% excise tax on general legal sales. When New York paved the way for widespread legal sales last year — a process that is still ongoing — the levies included a tax based on the level of THC, the active ingredient in marijuana.

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