State to increase pot taxes in 2020

It will likely cost a bit more to buy cannabis products starting in 2020 with the state increasing business tax rates for the legal industry.

The move is not being well received by those in the industry.

“This increase only adds support to a thriving illicit market,” Terra Carver, executive director of the Humboldt County Growers Alliance, said Friday. “State-level

tax reform is absolutely needed. We have been and will continue to be engaged with the Legislature to work on overhauling the very broken tax structure.”

Hefty marijuana taxes that can approach 50 percent in some communities have been blamed for pushing shoppers into California’s tax-free illegal market, which is thriving. Industry analysts estimate that $3 are spent in the illegal market for every $1 in the legal one.

The California Cannabis Industry Association said in a statement that its members are “stunned and outraged.”

Josh Drayton of the cannabis association predicted that an eighth-ounce purchase of marijuana buds,

typically priced around $40 to $45, would be pushed up to $50 or more in the new year.

For consumers, “ultimately, they’ll feel that at the register,” Drayton said.

Bryan Willkomm, the general manager at the Humboldt Patient Resource Center, which has dispensaries in Eureka and Arcata, said there are “not concerns” but “guarantees” that the new taxes will drive customers to purchase their marijuana from unregulated suppliers.

“A great customer will come in and say, ‘I have $20 to spend and I want to spend it with you or I can go to my guys.’ ” he said.

He said the taxes that have to be passed on to customers are already a deterrent for customers. Adding to that tax only increase the likelihood of looking elsewhere. Even medical customers

will see increased prices, but those who have a state cannabis card do not have to pay sales tax. The new tax is an excise tax.

But fewer than 10% of HPRC’s clients hold that card. Many people are deterred, Willkomm said.

“The state card does mean you are entered into the state database,” he said. “From what we hear, you are not able to purchase a weapon (if you have a state cannabis ID card).”

In 2016, a Ninth U.S. Circuit Court of Appeals ruling upheld a federal ban on gun sales to state medical marijuana patients.

The taxes are set to take effect Jan. 1, and for struggling mom-and-pop farms or small businesses it could mean downfall, said Stephen Gieder, the owner of Humboldt Green.

“It’s going to be the make-it-or-break-it point,”

he said Friday afternoon. “It will have a negative impact and it’s already overtaxed.”

He, like Carver and others, said when consumers feel the pinch it will drive them to purchase products through the illicit market, something that is alive and well in Humboldt County.

“It’ll definitely make it so people choose the illicit market as consumers,” Gieder said. “The illicit market makes up for 80% to 90% of the cannabis being sold in California as is.”

He said that ratio holds true for the county.

“Right now there are less than 1,000 licensed farms in Humboldt,” he said. “There are 10,00 to 15,000 outdoor farms. Just by the numbers, probably 90 percent of the cannabis being sold on wholesale is illicit.”

Purchasing products through the illicit market comes with its own risks,

something highlighted by the vaping health crisis that spurred the state Department of Public Health to warn consumers not to vape any products, cannabis or tobacco, legal or illegal.

“You don’t know what you’re getting,” he said. “Your medicine is not clean. It could be but it’s not tested. What you are getting from a dispensary is a product that is tested. … Lots of farmers use whatever they need to in a pinch. There is a chance the product will be contaminated with cancer-causing elements. That’s the biggest concern. That’s why I get my medicine from a dispensary or my own garden.”

The Associated Press contributed to this report. Ruth Schneider can be reached at 707-441-0520.