Pot taxes lag as il­le­gal mar­ket flour­ishes Page 5A

Porterville Recorder - - FRONT PAGE - By MICHAEL R. BLOOD

LOS AN­GE­LES — Deep in Gov. Gavin New­som's new bud­get is a fig­ure that says a lot about Cal­i­for­nia's shaky le­gal mar­i­juana mar­ket: The state is ex­pect­ing a lot less cash com­ing in from cannabis taxes.

The Demo­crat's pro­posed spend­ing plan, re­leased Thurs­day, projects the state will bank $355 mil­lion in mar­i­juana ex­cise taxes by the end of June. That's roughly half of what was once ex­pected after broad le­gal sales kicked off last year.

In­dus­try ex­perts say the di­min­ished tax in­come re­flects a somber re­al­ity: Most con­sumers are con­tin­u­ing to pur­chase pot in the il­le­gal mar­ket­place, where they avoid taxes that can near 50 per­cent in some com­mu­ni­ties.

Tax col­lec­tions are ex­pected to grad­u­ally in­crease over time, but pre­dict­ing what that amount will be re­mains some­thing of a guess.

Tax col­lec­tions for "a newly cre­ated mar­ket are sub­ject to sig­nif­i­cant uncer­tainty," the bud­get said.

Josh Dray­ton of the Cal­i­for­nia Cannabis In­dus­try As­so­ci­a­tion cred­ited New­som with tak­ing "a re­al­is­tic look at the chal­lenges" after a bumpy first year of broad le­gal sales.

New­som also rec­om­mended a sharp in­crease in spend­ing for cannabis pro­grams, although it's an open ques­tion whether it will be enough to help steady the state pot econ­omy. The bud­get rec­om­mends just over $200 mil­lion for mar­i­juana-re­lated ac­tiv­i­ties in the fis­cal year that starts July 1, which would be over a 50 per­cent boost from the cur­rent year.

Ini­tially "the state was too op­ti­mistic about how the im­ple­men­ta­tion of le­gal­iza­tion was go­ing to work. This gov­er­nor has paid at­ten­tion to that," Dray­ton said.

That said, Dray­ton added that le­gal busi­nesses need a break from hefty tax rates that are driv­ing con­sumers to the il­licit econ­omy. Var­i­ous pro­pos­als have been made to cut state pot taxes.

State taxes in­clude a 15 per­cent levy on pur­chases of all cannabis and cannabis prod­ucts, in­clud­ing med­i­cal pot. Lo­cal gov­ern­ments are free to slap on taxes on sales and grow­ing too, which has cre­ated a con­fus­ing patch­work of tax rates around the state.

The state's top mar­i­juana reg­u­la­tor, Lori Ajax, has said the state in­tends to get more busi­nesses li­censed and op­er­at­ing in 2019, while crack­ing down on rogue op­er­a­tors who con­tinue to pro­lif­er­ate across the state.

At year's end, Cal­i­for­nia's ef­fort to trans­form its long­stand­ing il­le­gal and medic­i­nal mar­i­juana mar­kets into a uni­fied, multi­bil­lion-dol­lar in­dus­try re­mained a work in progress. By some es­ti­mates, up to 80 per­cent of sales in the state re­main un­der the ta­ble, snatch­ing prof­its from le­gal store­fronts.

Dray­ton said more than half the mu­nic­i­pal­i­ties in the state do not have laws govern­ing the in­dus­try. That means pot busi­nesses can­not lo­cate there, since com­pa­nies are re­quired to have a lo­cal li­cense be­fore seek­ing one from the state.


This 2018 photo shows ven­dors from MF Ex­tracts count­ing their in­take of cash at their booth at Kush­stock 6.5 fes­ti­val in Ade­lanto Calif.

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