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California Might Lower Cannabis Tax to Help Legal Marijuana Compete with Black Market

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Several lawmakers from California are going to propose a bill today to decrease the taxes collected from local licensed cannabis businesses across the state.

They are concerned that new cannabis ventures are going to be undermined by illegal operations that are not paying any taxes to the state.

The legislators are planning the tax reduction for three years and considering cutting the taxes on cultivation and selling.

California’s excise tax is planned to go down to 11% from the current 15% while the cultivation tax of $148/pound will be suspended.

These changes were in response to the outcry of several licensed businesses complaining about losses due to the current local and state tax programs.

Tom Lackey, R-Palmdale

Tom Lackey, R-Palmdale, a member of the legislative body, and one of the five lawmakers who is pushing the draft said that they need to give a breather to the licensed businesses as well as disrupt those operating illegally.

He called these unauthorized operators criminals and expressed his contempt against them for not paying taxes, the probability of selling to those under the legal age, and for lacking a license that can prove their operations are following safety regulations in terms of handling the merchandise.

Voters from California gave their approval of the 15% tax when the Proposition 64 was passed in 2016.

Proposition 64 legalized and allowed the sale, distribution, and growth of recreational cannabis and required state licensing for businesses to continue selling the substance for medical purposes.

On January 1 this year, license holders started growing and selling cannabis.

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Licensed Marijuana Businesses Urge the State to Crack Down on their Unlicensed Competition

Licensed growers stated their concerns saying that the combined cost of state and local taxes are hitting them hard.

In some counties, sales tax rate go even as high as 9.2%. According to the credit rating firm Fitch, the racking up of the taxes is increasing the price of legal cannabis by up to 45%.

Industry leaders say that this could be a huge disadvantage for them in particular, considering the $1,000 license processing fee the state will soon charge.

California Lower Cannabis Tax

Hezekiah Allen, executive director of the cannabis trade group, California Growers Association, said that the three-year tax cut will help even out the playing field between the underground cannabis markets and those operating legally.

He also added that this is an enormous step forward on the right path because, with the current state of things, business owners from California are struggling to pay the one-time cost of the regulatory compliance.

These businesses are at a significant disadvantage to unregulated operators who are continuing to operate in the unregulated market and are not incurring their costs,” Allen further stated.

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Although Proposition 64 set the 15% tax, the state is not obligated to have the citizens vote for the reduction of tax.

That kind of measure grants the Legislature the power to revise the tax program by two-thirds of the majority as long as it encourages the intent of the proposition.

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Lackey and his colleagues say that the proposal they are going to submit will be able to do this by scaling down the operations of the black market.

Beau Whitney, a senior economist said that the tax reduction can give the legal marijuana industry in California a new vigor. Whitney is from New Frontier Data, an information analytic company that serves the cannabis industry.

He also forecasts that this proposed charter will reduce the total price consumers have to pay at the counter and will lower the disadvantages legal businesses have against illicit ventures.

Updates from Sacramento

Sacramento

Business Analysts and experts from the state estimated an annual $1 billion tax revenue from the legal cannabis industry in the state.

On the other hand, California’s Governor, Jerry Brown’s projected tax revenue from the licensed holders is $643 million for the fiscal year starting on July 1.

The proposed legislation could change the estimated numbers given by industry experts and by the governor himself.

Brown’s spokesman declined to give a statement on the bill. He added that Governor Brown rarely comments on the pending legislative recommendation.

Assemblyman Rob Bonta (D-Oakland), Lackey’s colleague and another lead author of the proposed sales and tax bill firmly asserts that the companies and businesses in the industry who have licenses to cultivate, grow, and sell cannabis are under pressure with tough regulations.

He believes that the industry is making huge investments in their operations and in return, deserves help from the government.

Bonta ended with high hopes saying that the legislative bill would lower the burdens of tax cost, especially for those starting out and transitioning.

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He believes that it will aid them to keep their customers and help them ensure that the licensed market will survive and thrive.


Do you think lower cannabis tax would help legal marijuana to compete with the black market? Let us know your thoughts in the comments below.

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