This week, California Gov. Gavin Newsom signed legislation rolling back an increase to the state excise tax imposed on the legal marijuana industry, which has struggled to compete with the black market given the state’s onerous tax and regulatory schemes.
Since Californians voted to legalize marijuana in 2016 through Proposition 64, the state has made it difficult for legal operators to step up and stay in business.
“For many years, cannabis industry representatives have argued that combined state and local taxes on cannabis has placed it at a competitive disadvantage to the unregulated illicit market,” explained an analysis from the Senate Rules Committee. “The representatives added that the cultivation tax specifically pushes cannabis farmers into the unregulated market.”
So it wasn’t going to help when the state excise tax rose from 15% to 19%. “At the end of the day, you end up with a total tax burden of around 40%” when all taxes are added up, explained Tiffany Devitt, director of regulatory affairs for CannaCraft, to KQED.
And so, Assembly Bill 564 was put forward to suspend the 4% tax hike to help the legal market stay afloat.
“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” said Gov. Newsom upon signing the legislation.
If only he and the supermajority Democratic Legislature could apply the same logic to excessive taxes on all types of businesses. But even here, with a modest tax cut, you see why that’s easier said than done.
Through Proposition 64, the state allocates a portion of marijuana tax revenue to community organizations. Naturally, many of them are angry at the prospect of getting less money.
We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits.
“When voters approved Proposition 64, they dedicated significant cannabis excise tax and cultivation tax revenues for the Tier 3 programs. These revenues are a significant funding source for childcare for low-income families, youth substance use prevention programs, environmental remediation including restoration of watersheds damaged by cannabis cultivation, and law enforcement programs,” declared several of them in a coalition letter.
In other words, there’s now a whole nonprofit industry now reliant on marijuana tax revenue. But if the high taxes suffocate the market, how viable could that be in the long run?
This is why it’s hard, once government gets in the business of taxing and spending, to scale any of it back. Special interests with clear economic interests fight to claim “their share” of public funds and make it a struggle to claw back anything, regardless of the long-term consequences. In this case, even the Democrats were able to see that high taxes were shooting the legal market in the foot.
Again, if only they could apply this type of scrutiny beyond marijuana and find the resolve to stand up to much more powerful interests.