FILE – A mature marijuana plant flowers under artificial lights prior to harvest at Loving Kindness Farms in Los Angeles on May 8, 2020. Gov. Gavin Newsom will propose a temporary tax cut for California’s marijuana industry, but businesses say it falls short of what’s needed to revive the shaky pot economy. Broad legal sales began in 2018 but the industry has struggled with hefty taxes, regulation and competition from a vast illegal marketplace. The administration will recommend eliminating the cultivation tax. But a later increase would come in the cannabis excise tax to make up for those funds, possibly as soon as 2024. Jerred Kiloh of the United Cannabis Business Association says the plan would not cut consumer prices or lure buyers from the underground market. (AP Photo/Richard Vogel, File)
California’s governor on Friday proposed a temporary tax cut for the state’s struggling legal marijuana industry, but businesses said it falls far short of what’s needed to revive a foundering pot economy.
Broad legal sales began in California in 2018, but the industry has been burdened by hefty taxes that can approach 50% in some areas, costly regulation and competition from a flourishing illegal marketplace, which industry analysts estimate is 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.
California was once envisioned as a national model for legal sales, but industry leaders warned Democratic Gov. Gavin Newsom in December that the state’s licensed industry was verging on collapse and needed immediate tax relief and a swift expansion of retail outlets to survive.
In a proposal to the Legislature for the budget year that starts in July, the Newsom administration recommended eliminating the much-despised cultivation tax, which is set at $161 on a pound of buds. But to make up for those lost funds, the state after three years would raise the excise tax imposed on retail cannabis purchases to 19%, up from the current 15%.
But an excise tax jump could come sooner.
If the state isn’t taking in enough cannabis tax money to support a range of education, law enforcement and other programs — a total of $670 million each year — the excise tax could be stepped up to cover that gap as soon as January 2024, though not necessarily to the 19% level. Additionally the state is putting up a one-time $150 million stream of funds to help cover those costs.
The tax debate presents a dicey political challenge for Newsom, who is seeking a second, four-year term in November. He’s being pressured by financially struggling businesses that want a deep tax cut, but youth and other organizations that benefit from those dollars don’t want to see that funding dry up.
Published: May 16, 2022
Founder & Interim Editor of L.A. Cannabis News