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California Considering a Tax Cut for Cannabis Businesses

It soon could get a little cheaper to grow and buy legal marijuana in California.

California lawmakers announced a bill that would temporarily reduce or eliminate two cannabis taxes in an effort to help fertilize a newly legal industry that they say is having trouble competing with black market operators.

The bill would reduce the state’s 15 percent cannabis excise tax to 11 percent and eliminate a cultivation tax a that growers pay for three years.

California Considering a Tax Cut for Cannabis Businesses

“Those good businesses, those good actors, are not able to compete with the black market product if they cannot be competitive on price and cost,” said Assemblyman Rob Bonta, D-Alameda, one of the sponsors of Assembly Bill 286.

People who buy cannabis from licensed stores in California sometimes face taxes that are equivalent to 45 percent of the cost of their purchase, according to a report from Fitch Ratings. Aside from the excise and cultivation tax, local governments sometimes have their own taxes on marijuana.

Assemblyman Tom Lackey, R-Palmdale, also supports the bill. He noted that state revenue from cannabis taxes came in about $100 million below what Gov. Jerry Brown’s office projected last year. The state collected $84 million in revenue for fiscal year 2017-18, and projects to receive $355 million in 2018-19 and $514 million in 2019-20.

An example of how the excise can dramatically increase the sales price of a cannabis product: When a lawful retailer sells an ounce of high-quality cannabis for $256.63 — the average price in California according to the user-data-generated website Price of Weed — they must add more than $38 to the final bill to cover the tax.

Despite legalization, the black market still thrives in California. The CHP seized nearly eight tons of cannabis between January and November of 2018. That’s nearly double the amount seized in 2017, and the most seized in a calendar year since 2014.

“Right now, the illicit market is dominating the cannabis industry. These are bad actors. These are people who are evading taxes and making our communities less safe,” Lackey said.

Bonta was part of a group of lawmakers to introduce a similar bill in the last legislative session; that bill died in the Assembly Appropriations Committee.

State Treasurer Fiona Ma, another bill co-sponsor, said that her office has heard from members of the cannabis industry that a 15 percent excise tax is too high.

“We don’t tax start-up businesses (in other industries) when they start,” Ma said. “We need to do better. This is anywhere from a $6 billion to $20 billion industry here in California.”

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