Anyone who’s legally running a business in the cannabis market will tell you: the struggle is real. From the outside perspective, things may be looking really promising within the cannabis space. Every other day, there seems to be a new flower brand, a new dispensary, a new grow facility, a new edible, a new [fill in the blank] arriving on the scene.
But what most people may not know is a lot of these companies, especially in California, are suffering as we speak. Due to the insanely high percentage of cannabis taxes, a lot of these new businesses are paying a ridiculous amount of money just to keep the lights on. In fact, all marijuana-infused products are taxed at 20% of the retail price, making it hard for the legal industry to even compete against the underground or black market.
Proposition 64: Legalizing Cannabis in California
Now, let’s cover the basics. In 2016, Proposition 64 was passed: an initiative to legalize cannabis in California. Named the Control, Regulate and Tax Adult Use of Marijuana Act, this allowed for recreational use of marijuana under California state law (in addition to medical use). While this seemed like a huge win, what folks weren’t prepared for was the sudden cost of regulations inflicted by the new law. On top of the licensing fees, intricate rules popped up in every aspect of the business, from cultivation and retailing, to manufacture and testing, to wholesale distribution, and seed-to-sale tracking — you name it.
The sad reality of the situation is that the sales taxes from Proposition 64 assisted in reeling in over one billion dollars in revenue. An article was released on KCRW speaking to how terrible taxes are in Los Angeles, and why it’s one of the worst places to purchase marijuana.
New cultivation and excise taxes aimed to raise around $1 billion per year for various state programs, and local governments were authorized to levy even more taxes on their own. While your pre-taxed purchase at a dispensary may be $100, you’re looking at roughly spending $139 out the door. You can thank the 15% state excise tax, a 10% local business tax, and a 9.5% local and state sales tax — all layered underneath each other. Leaving customers perplexed… why am I paying $39 in taxes on a $100 order?
This brings us to our next question. Could eliminating the cultivation tax actually double California’s monthly cannabis tax revenue?
Eliminating Cultivation Tax to Increase Production
Reason Foundation, Good Farmers Great Neighbors, and Precision Advocacy seem to think so. In a new study, they seem to have found a solution to the crisis, especially given the state of panic cannabis farmers throughout the state are undergoing. Thanks to the financial challenges, some cultivation facilities have even considered not planting at all.
Amy Jenkins, the president of Precision Advocacy and legislative advocate of the California Cannabis Industry Association, states:
In addition, the study provides an outline of tax policy solutions for the governor and state legislative leaders to review and consider immediately.
“The study shows a path forward, that change is possible, and California can realize the economic benefits of being home to the world’s largest legal market,” Jenkins explains. “More reforms are greatly needed to remove market entry barriers, force the illicit industry out of business, right the past wrongs of incarceration, reduce onerous taxes and regulations, and prioritize social equity programs.”
To unleash the industry’s full economic potential, Jenkins affirms we must expand access to banking and insurance, and invest more into science and research to explore medical and mental health breakthroughs.