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California might have the largest legal weed market in the entire US, but the state's cannabis taxes are so damn high that many customers are still buying their weed on the black market. And to make matters even worse, the state's tax system is so confusing that even experienced budtenders have a hard time explaining where customers' money is actually going.
The Golden State taxes every single stage of cannabis production from seed to sale. Licensed cultivators are hit with three different taxes: $9.65-per-ounce tax on dry flower, $2.87-per-ounce tax on pot leaves, and $1.35 tax on each ounce of fresh plant material. On the retail end, all dispensaries must charge a 15 percent cannabis excise tax, plus the standard 7.25 percent state sales tax. And on top of that, individual cities, counties, and towns can add on as much extra tax as they like.
These variable local taxes cause the price of weed to vary widely across the state. Anyone that buys $100 worth of weed at a legal Los Angeles dispensary will end up coughing up $138.52 after all of the state and local taxes are applied. Legal sales in Hollywood, Oakland, and San Jose are also hit with combined weed taxes of 38 percent or more.
Total tax rates in medium-size cities like Sacramento and San Diego tend to hover around 33 to 34 percent. Cannabis customers can save some cash by visiting dispensaries in smaller towns and cities, though. A hundred bucks worth of pre-tax weed will only cost $127 in the aptly-named town of Weed, and tax rates are even slightly lower in Yolo and Alameda counties.
In a recent interview with KCRW, Leafly Senior Editor David Downs delved into the specifics of the Golden State's confusing cannabis tax system. “Just for comparison, Oakland's cannabis taxes are 417 times higher than Oakland's taxes on guns and ammo [businesses,]” Downs explained. “And in Los Angeles, the marijuana taxes on businesses are 2,808 times higher than the business taxes on a check cashing or a payday lender.”
These extreme taxes are one of the main reasons why the state's illicit cannabis market makes three times as much cash as the legal industry does. The high tax rates are also bad news for licensed dispensaries, many of which are struggling to turn a profit after coughing up their own licensing fees and business taxes.
“This is especially true for small or minority-owned cannabis businesses that don't have reserves [per se] or rich investors or a credit line — even though the state is taking in hundreds and hundreds of millions of dollars in tax revenue,” Downs told KCRW. “The actual amount that a business owner is left with at the end of the day, they report, is often zero or a negative amount.”
Last year, California collected an eye-watering $1 billion in cannabis tax revenue. And although these extreme taxes are discouraging legal weed purchases and hurting local pot businesses, the state is at least putting some of this money to good use. In the past three years, California has reinvested $532.8 million in weed taxes into public health, safety, and environmental programs. Over $140 million of this has gone to help 11,000 low-income children in child care, and another $37.5 million went to programs to help at-risk youth.