California Eliminates Cannabis Cultivation Tax and Boosts Social Equity Investments
While AB 195 axes the state's cultivation tax, it makes retailers responsible for excise tax collection instead of distributors. And chances are that the average customer won't notice much difference in price.
Published on July 7, 2022

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California's weed cultivation taxes are gone.

Last week, Governor Gavin Newsom signed AB 195 into law, which eliminates California's cannabis cultivation tax, shifts other tax burdens around, and boosts social equity investments.

Weed tax relief is something cannabis entrepreneurs have been yawping over for some time now. Last December, California experienced a near-tax revolt, which led to San Francisco temporarily suspending some of its cannabis-related business taxes after a wave of robberies hit the Bay Area's licensed pot shops. However, in exchange for axing the cultivation tax, general excise tax collection shifted to retailers from distributors.

For social equity cannabis businesses, taking on the burden of collecting excise taxes may be a blessing. Under AB 195, social equity licensees — who are weed entrepreneurs who were directly and negatively impacted by the War on Drugs — may use 20% of collected excise taxes to reinvest in their own business through the next three years. Qualified social equity licensees will also receive a $10,000 tax credit, and an additional $40 million will be set aside for other assistance to weed businesses, like support for microbusinesses, equity operators and (gulp) ramping up the policing of illegal cannabis businesses.

Other reform measures the bill will put into effect include maintaining the cannabis excise tax at 15 percent for the next three years.

AB 195 is part of a $308 billion state budget package that also provides health services to undocumented immigrants and expands access to abortion following the US Supreme Court's overturning of Roe v. Wade, which will leave people in roughly half the country’s states without access to reproductive health care.

The bill is also a boon to cannabis workers hoping to form unions. It lowers the number of workers a business can have before the state’s labor peace agreement requirement takes effect. (A labor peace agreement, for those who need the explainer, means that employers can’t oppose workers’ plans to unionize, and that workers can’t strike.) California’s cannabis labor peace agreement requirement is among the most progressive in the nation — which is pretty cool in a country where less than 10% of workers have a union.

Industry groups responded with measured glee to the announcement, with only a small amount of we-told-you-so energy.

“CCIA has been lobbying for the elimination of the cultivation tax since it went into effect four years ago,” read a statement from the California Cannabis Industry Association. “Zeroing out the cultivation tax indefinitely and shifting excise tax collection from distribution to retail are big wins for our industry!

Before the bill, California cannabis cultivation tax exceeded $161 per pound of flower.

“I’m incredibly proud of this bill. It accomplishes an incredible amount of things for the betterment of all Californians,” said Nicole Elliott, who is director of the Department of Cannabis Control, to CalMatters. “So I think we need to take a moment to reflect on the fact that something great got done.”

Many are hoping that the bill will make the difference in a legal state industry that has never been able to take much market share away from legacy growers and sellers. Cannabis workers in the regulated industry have seen weed prices drop dramatically over the past few years, and for some time, it’s seemed like something had to give or California’s legal businesses would “implode.”

Follow Caitlin on Instagram, and catch her Spanish-language podcast Crónica on Spotify and Mixcloud. 

Caitlin Donohue
Caitlin Donohue is a Bay Area-raised, Mexico City-based cannabis writer and author of She Represents: 44 Women Who Are Changing Politics and the World. Her weekly show Crónica on Radio Nopal explores Mexican marijuana culture and politics in the prohibition era. Follow Caitlin on IG @byrdwatch.
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