Pot industry shrugs at state tax cut proposal
California's governor Friday proposed a temporary tax cut for the state's struggling legal marijuana industry, but businesses said it falls far short of what's needed to revive a foundering pot economy.
Broad legal sales began in California in 2018, but the industry has been burdened by hefty taxes that can approach 50% in some areas, costly regulation and competition from a flourishing illegal marketplace, which industry analysts estimate is at least twice the size of the legal one.
California was once envisioned as a national model for legal sales, but industry leaders warned Democratic Gov. Gavin Newsom in December that the state's licensed industry was verging on collapse and needed immediate tax relief and a swift expansion of retail outlets to survive.
The plan disappointed leading businesses seeking elimination of the cultivation tax, along with a cut in the excise tax imposed on retail sales to 5%, down from 15%, among other changes.
Jerred Kiloh of the United Cannabis Business Association, a Los Angelesbased trade group, said the plan would not allow companies to reduce steep consumer prices that have been driving buyers into the underground market, where taxes are not imposed and prices are cheaper.
Without that, the industry will continue to suffer, Kiloh said. “All they are really doing is shifting some taxes around, and it's not ever going to get to the customer,” Kiloh added.
In a proposal to the Legislature for the budget year that starts in July, the Newsom administration recommended eliminating the despised cultivation tax, set at $161 on a pound of buds.
To make up for those lost funds, the state after three years would raise the excise tax imposed on retail cannabis purchases to 19%, up from the current 15%.
Under the proposal, however, an excise tax jump could come sooner.
If the state isn't taking in enough cannabis tax money to support education, law enforcement and other programs — a total of $670 million each year — the excise tax could be stepped up to cover that gap as soon as January 2024, although not necessarily to the 19% level.