California's Governor Gavin Newsom just proposed a long-awaited tax cut intended to help the state's embattered cannabis industry survive.
As part of his newest state budget proposal, the governor recommended that the state do away with its current cannabis cultivation tax. This tax, which has been in effect since adult-use sales began in 2018, forces every legal weed grower to cough up $10.08 for every ounce of dried flower, $3 for every ounce of dried leaves, and $1.41 for every ounce of raw plant material.
Newsom's budget proposal also includes an additional $20 million in grants to help encourage individual towns, cities, and counties to open legal weed shops. State law allows local governments to ban pot businesses from opening in their jurisdictions, and around 80% of municipalities have chosen to do so. These local bans make it difficult for many Californians to actually buy legal weed, so many stoners end up supporting local underground market dealers instead of legal dispensaries.
The budget proposals are designed to help revive the state's weed industry, which has been struggling to turn a profit thanks to wildfires, robberies, and fierce competition with the illicit market. California currently has some of the highest cannabis taxes in the US – as high as 50% in some areas – and high prices are convincing customers to buy cheap weed on the illicit market. Adult-use businesses have been pressuring the state to back down on its extreme tax regime, and although many cities and counties have started offering temporary tax cuts, state regulators have yet to offer relief.
At long last, the governor has finally proposed a solution to these tax issues, but advocates have already raised some serious concerns about the plan. Although Newsom is pushing to remove the cultivation tax, he has also suggested raising the state excise tax from 15% to 19% over the next three years. This proposal has angered industry stakeholders and advocates, who have been begging the state to cut the excise tax down to 5%.
Advocates are arguing that cutting one tax while raising another will not change the overall price of weed at all, and will therefore do nothing to make the legal industry more competitive with the unlicensed market. “All they are really doing is shifting some taxes around, and it’s not ever going to get to the customer,” said Jerred Kiloh of the Los Angeles-based United Cannabis Business Association to the Associated Press. Lindsay Robinson of the California Cannabis Industry Association agreed that Newsom's plan amounts to nothing but “kicking the can down the road.”
But according to a recent study, removing the cultivation tax would actually increase the state's cannabis tax revenue, not shrink it. Researchers suggest that cutting this tax would lower overall weed prices, which would in turn boost legal sales. These increased sales would ultimately increase the state's overall weed tax revenue by 123%, analysts predict. If this report is accurate, the state could cut the cultivation tax and still make bank without needing to increase its excise tax – or it could even cut both taxes without losing any revenue.
Newsom's new budget is only a proposal, though, and it will not take effect unless approved by a two-thirds majority vote from the state legislature. The new budget rules will not begin until July 1st, so lawmakers still have a chance to revise the state's cannabis tax regime before then.