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California eliminates cannabis cultivation tax, effective immediately

The tax, which imposed a rate of $161 per pound on licensed growers, was zeroed out following Gov. Gavin Newsom’s budget signing.

California’s regulated cannabis market just got a little bit more competitive with the robust illicit market that has continued to flex its power in the state.

Following Gov. Gavin Newsom’s signing of a $308-billion state budget on June 30, California’s weight-based cannabis cultivation tax was eliminated—effective July 1, 2022.

The cultivation tax, which imposed a $161-per-pound rate on licensed growers—regardless of the current market value of cannabis—was abolished via Assembly Bill 195, which was attached as a trailer to the state budget.

On June 29, the California Senate passed A.B. 195 via a 34-0 vote, while the Assembly passed the measure, 69-1. Assemblymember Rudy Salas casted the lone no vote before Newsom signed the budget the following day.

For Graham Farrar, co-founder and president of Glass House Brands, a Santa Barbara-based cannabis operator with more than a half a million square feet of cultivation space, A.B. 195 is in line with one of two main changes being advocated and echoed among the state’s license holders: less taxes and more retail.

“It’s huge,” Farrar said of killing the state’s cultivation tax. “You can charge a premium for licensed product because nobody prefers ‘bathtub gin,’ right? I think we’d all rather have licensed product, but there’s only so much premium people are willing to pay. So, less taxes narrows that gap [so the licensed growers have a chance to be competitive with the folks who aren’t paying taxes].”

Among the measures included in A.B. 195, the bill also maintains a 15% cannabis excise tax but moves the collection of that excise tax from distributors to point of retail sale by Jan. 1, 2023.

The tax reform included in the legislation will help brace the licensed industry, California Cannabis Industry Association (CCIA) Executive Director Lindsay Robinson said in a statement to Cannabis Business Times.

“The survival of the regulated industry is vital to providing ongoing tax revenues for the state and the advancement of public health and safety,” Robinson said. “Eliminating the cultivation tax is just one step towards stabilizing our industry but it’s an important one.”

California’s cannabis cultivation tax, which had been in effect since the state first launched adult-use sales in 2018, has generated roughly $500 million in state revenue: According to data from the California Department of Tax and Fee Administration (CDTFA), the cultivation tax has generated nearly $468 million through March 31, 2022, with $32.7 million generated in the first quarter of this year.

But by eliminating the cultivation tax, many industry advocates argue that the state’s total revenue from cannabis will continue to grow by way of greater participation in the legal market through less-burdensome policies that incentivize entry—both by growers and consumers.

A six-part study published May 4 in a 42-page report by Los Angeles-based Reason Foundation, a non-profit libertarian think tank, suggests eliminating the cultivation tax with no other changes to the state’s tax structure would still generate roughly $145 million in total monthly revenues by December 2024, while keeping the cultivation tax would generate $152.8 million—roughly 5% more.

To Read The Rest Of This Article By Tony Lange on Cannabis Business Times

Published: July 04, 2022

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