You might think that with legalization, in California, the “world’s largest marijuana marketplace” would be booming.
Nope.
Since California legalized weed, the anticipated constant flocking of customers, willing to abide by the law, hasn’t materialized as planned. Sales in the legal marketplace have flat-lined, while black market weed has been filling in the gaps, providing a steady flow of illicit product for those who don’t want to pay exorbitant taxes.
The high state and local tax rates are frequently cited as a significant industry issue. Critics say the high taxes work to ensure that legal businesses can’t compete with unlicensed retailers who offer lower prices — after all, when your illicit product isn’t licensed, it doesn’t have to pay taxes when it’s sold in your unlicensed (and untaxed) shop.
And guess what? California is increasing those cannabis taxes in 2020. The California Department of Tax and Fee Administration (CDTFA), which is required to recalculate the wholesale markup rate on cannabis every six months, revealed right before Thanksgiving that the markup rate for cannabis excise tax would balloon from 60% to 80% on January 1. How about them apples?
Since California announced the cannabis tax increase in November, which is positioned as a way to reduce the marijuana industry’s tax burden, insiders are saying the move has the potential to topple the legal side of the industry before it ever really got off the ground.
The Golden State was supposed to be the mecca for worldwide cannabis sales. However, the state’s first full official year of legal recreational adult-use marijuana sales in 2018 brought in $500 million less in sales revenue than the year before, in 2017, when just medical marijuana was for sale. That year’s sales figures were a robust $3 billion, just for medicinal weed.
For those that invested heavily — and without the ability to obtain standard business loans from banks — the clock is ticking, and not everyone will be able to weather the storm. Representatives from cannabis companies and trade groups have communicated with staffers at Governor Gavin Newsom’s office in Sacramento and officials from the CDTFA to gather political support for reducing tax burdens on legal canna-businesses. Proposal ideas included:
- Requesting that Newsom order the CDTFA to cancel the tax increase.
- Persuading the agency to postpone implementing the tax hike.
- Discussing other legislation to either simplify state cannabis taxes, lower them, or both.
What remains is a big ol’ question mark. Will Gov. Newsom do anything about the tax situation? His office hasn’t issued any firm policy position yet. In November, Gov. Newsom spokeswoman Nicole Elliott tweeted that the governor wants to work with stakeholders and is “sympathetic to the challenges faced by legal cannabis operation.”
