In Bid to Blunt Black Market, California Eyes Marijuana Tax Cuts [FEATURE]

Steve D’Angelo was prescient. As the era of legal recreational marijuana in California began just over a year ago, the East Bay medical marijuana maven expressed concerned that taxes on the newly legal industry were too high.

“It’s going to mean that a significant number of people, less affluent consumers are going to turn to the lower prices of the underground market,” he told KPIX 5 on January 1, 2018, the day it became legal in the state.

A year later D’Angelo’s concerns have been borne out. The state had estimated that retail marijuana sales would exceed the $3 billion in 2017 sales, which came solely from medical marijuana outlets, but instead legal sales actually declined to $2.5 billion.

As a result, tax revenues for the state are significantly lower than projected. The FY 2018 state budget estimated $185 million in marijuana sales taxes, but actually gathered only about $84 million. And based on January sales, the FY 2019 budget, which estimated tax revenues at $630 million, now looks to be overly optimistic. The latest projections have tax revenues for the fiscal year at $471 million.

In California, legal pot sales are saddled with a $9.25 per ounce cultivation tax paid by growers, as well as a 15 percent retail excise tax and a 7.25 percent retail sales tax paid by consumers. When you add in local taxes, pot buyers in some counties could be paying as much as 45 percent in aggregate tax on legal weed.

To be clear, high taxes aren’t the only things strangling the state’s legal marijuana market. Industry figures and analysts point to two other factors as well: The state’s onerous and costly regulatory requirements are keeping many growers and retailers from leaving the black market, and the refusal by many localities to allow legal marijuana sales in their jurisdictions has left broad swaths of the state with no alternative but the black market. (In a bid to boost the legal market, the state last month okayed plans for statewide deliveries no matter what localities say.)

Still, cutting the tax rate is something that could begin to make a dent in the black market. Assemblymember Rob Bonta (D-Oakland) introduced a pot tax cut bill last year that was defeated, but now, with a year’s worth of disappointing marijuana market news to provide momentum, he’s back again with another pot tax cut bill this year.

Late last month, with three cosponsors Bonta refiled Assembly Bill 286, which proposes eliminating the $148 per pound cultivation tax and reducing the 15 percent retail excise tax to 11 percent for three years. The bill also has the support of newly elected state Treasurer Fiona Ma.

 “The black market continues to undercut businesses that are complying with state regulations and doing things the right way,” Bonta said as he rolled out the bill. “AB 286 will temporarily reduce the tax burden on these licensed operators to keep customers at licensed businesses and help ensure the regulated market survives and thrives. This very strategy has been shown to actually increase overall tax revenue in other states.”

One of the cosponsors is Assemblymember Tom Lackey (R-Palmdale), who authored an identical bill last year. That bill made it through two committees, only to die in Assembly Appropriations.

“Right now, the illicit market is dominating California’s cannabis industry,” said Assemblymember Tom Lackey (R-Palmdale). “These are bad people who are making our communities unsafe.  We need to give the good guys a chance to succeed otherwise our one chance at creating a regulated industry will be compromised.”

Bonta and his colleagues pointed to the experience of legal marijuana states Oregon and Washington, which have successfully taken steps to reduce tax rates and encourage the growth of the legal market. Washington saw exponential growth in marijuana tax revenue after it simplified its tax structure and reduced its rates. Tax revenues there jumped from $13.4 million in the final month of the initial tax rate in June 2015 to more than $33 million in April 2017.

“By lowering the excise tax and postponing the cultivation tax it will lower the overall price for consumers at the register, which will also reduce the differential between illicit and legal prices. Reducing this gap is critical to making the legal market more competitive against the illicit market and more attractive for consumers,” said Beau Whitney, Senior Economist at New Frontier Data.

Fixing California’s pot taxes clearly won’t resolve all the issues the state faces as it makes the transition to the world’s largest legal marijuana market, but it’s a start. 

This article was produced by Drug Reporter, a project of the Independent Media Institute.

Permission to Reprint: This article is licensed under a modified Creative Commons Attribution license.
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Marijuana tax

One of our first Supreme Court justices stated "The power to tax is the power to kill". So California is beginning to realize the wisdom of this statement.

 

I believe I learned that in Econ 101. I ashame more legislators skipped that class.
 

Taxes in California, recreational legalization

Well the passing of Recreational Legalization has screwed the medical users in more than one way. First the ruinously high taxes, the cost of my medication escalated to more than double the cost under Medical Legalization. The tax relief offered was illusory and cost $100 to process the applications with the physician's letter. It also wiped out the offices where patients could go to obtain such letters. Regular physicians are not interested in endangering their livelihoods by writing letters of recommendation so in a week or so the costly tax exemption will expire and I will be forced to pay higher city and state taxes. Another problem is that cannabis products sold to the public have been severely limited in the amount to be sold in a package. Formerly I used Kiva Chocolate bars containing 180 mg of medication which I rendered into 16 doses for about $15 per bar, If I was to use Kiva on a regular basis now I would pay before taxes about $22/bar of 100 mg or 10 doses. I use a cheaper product of medicated gummies sold for about $17 per 10 doses. My principal uses are for relaxation to allow myself to sleep and in 5 mg doses to dull pain from my chronic medical condition. I am presently 81 yoa and was a LVN frequently dispensing much stronger medications than I would ever care to ingest to people of my present age. I hope that California can get its collective legislative head out of its collective anus and pass laws liberalizing the taxes on one of the safest medications to be produced in the USA in over 80 years. Yes I was born in the year cannabis was made illegal by Harry J. Anslinger. Oh and I have written to my elected state representatives and to my Federal elected representatives as well on these matters as I know they are victims of DEA propaganda even more than regular Americans. Bobbie Sellers

Marijuana taxes

Bobbie,

 

I agree 100 percent with your comments. I am a vet myself who suffers from bi-polar disorder and PTSD.  Cannabis helps me along the path of medicating.  I get most of my meds at the VA Hospital.  I thought it was interesting that you were born the year in which Harry Anslnger along with the Hearst Newspapers demonized the plant.

John Thomas's picture

Reality

Getting rid of the huge, unjustified taxes will help, but it won't solve the problem.   -   Everybody in the marijuana "industry" is in massive denial.

Most of the cost of black-market marijuana is made up of the 'prohibition premium'  - that amount which compensates the seller for the risk of going to jail.   -  With legalization, the risk is gone and so should be the prohibition premium.

But sellers refuse to come out of the clouds, insisting on pegging their prices to what the black-market was before legalization.   -  THAT'S the main part of the problem.

Colorado and Oregon have already experienced the market forces that cause reality to be recognized.   Prices have dropped from $400 an ounce, to $200 or less.  After the dust settles on re-legalizing marijuana, average quality herb will sell for $50 an ounce, or less.   -  It's just a plant!

The price of marijuana will naturally float near that of fine, pipe tobacco.   As long as legal sellers refuse to recognize this reality, the black-market will continue to exist.  -  Once prices are allowed to descend to their natural place, the black-market will disappear. 

Has anyone bought some black-market moonshine lately?

 

 

 

Dain Bramage's picture

Right. Pennies on the pound for pot

...If treated like any other agricultural product, the cost of cannabis would be mere pennies on the pound.

Here is the precise point where social justice comes into conflict with capitalism.  Dispensaries in legal states enjoy profits borne on the backs of marijuana arrests in prohibitionist states.  And when we shop in these dispensaries, we participate in that injustice.

Yes, I do shop at dispensaries.  But as fond, and as loyal, as I am to my favorite dispensary, I participate in the cause of marijuana legalization for the benefit of people,  not for corporations.  Sorry, but I will not fight for corporate profits, not even for dispensaries.  (And, that money comes out of my pocket, by the way, and I ain't rich!)

I can't tell you it's wrong to try to make a buck.  Everybody needs a job.  But the cause of marijuana legalization is, in the final analysis, a matter of social justice.  And that is why the legalization community must take great care not to conflate legalization with profits.

We must separate the sheep from the wolves, that is, the legalizers from the money-grubbers.  The business community -- including specifically the marijuana industry business community -- cannot and must not be permitted to speak on behalf of the true legalization community.   They have a different agenda!

Dain Bramage's picture

Patients' Rights

Marijuana is medicine; that's a well-established established fact.

And, while the label may be politically derived, medical marijuana patients themselves are quite real, and they depend on their medicine to promote wellness, to treat their ailments, and often, simply to survive.  They cannot reasonably be expected to grow their own, and they need a dependable, brick-and-mortar dispensary to acquire their meds.  Even without debilitating illness, homegrows require more time and resources than the average citizen can reasonably and successfully achieve.

So, we do need dispensaries.  To clarify, I am pro-dispensary, anti-capitalism.

Why not have non-profit dispensaries?   I owe capitalism nothing.

Dain Bramage's picture

Republicans oppose basic Healthcare for all Americans...

...and therefore, Republicans sure as fuck don't care about the health and well-being of medical marijuana patients!

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