In an effort to help thwart the thriving black market, a bill was introduced last week that would offer a tax break to legal cannabis businesses in California.
The “Temporary Cannabis Tax Reduction Bill” – formally known as Assembly Bill 286 – would reduce state excise taxes from 15% to 11% until 2022. It would also stop cultivation taxes altogether for the next 3 years. This bill, backed by state Treasurer Fiona Ma, was proposed in response to the fact that California pulled in $101 million less than expected in cannabis taxes.
“We don’t tax start-up businesses [from other industries] when they start,” stated Fiona Ma. “We need to do better.”
State officials and supporters of the bill believe the low revenue is because of two unique challenges that cannabis businesses face, extremely high taxes and limited access to banking. In total, California cannabis businesses are paying 45% in taxes, which means they have to bump their prices to make any kind of profit. This makes it easy for black market competitors (street dealers and unlicensed dispensaries) to steal customers from businesses that are trying to follow the laws.
Although more than half of the country has legalized cannabis for either medical or recreational use, businesses are still finding it extremely difficult to get help from banks in the form of account access and loans. This is because cannabis remains federally illegal and is listed as a Schedule 1 drug under the Controlled Substances Act.
Another issue plaguing the California cannabis industry is the ability of local municipalities to ban any kind of cultivation or commercial activity in their cities/towns. So instead of driving long distances to make a purchase (especially with the rising costs of gas), people are turning to their local dealers for convenience.
“AB 286 is an important step to ensure that we protect legitimate taxpaying businesses and stop the illegal black market in California,” said Assembly member Rob Bonta, D-Alameda. “The black market continues to undercut legal businesses that are complying with state regulations.”
California has been selling legal cannabis for over 1 year now, but the black market stays booming because many people just can’t afford the prices at legal business, especially after the new guidelines came into effect on July 1, 2018.
“The whole California system for adult-use legalization implementation has been a mess,” said Troy Dayton, CEO of the Arcview Group. “California is the first state where the total retail sales went down after they transitioned to adult use because it’s so complex and the taxes are so high and everything else.”
We agree, and we hope California finds a way to effectively regulate cannabis sales without alienating businesses that are trying to be law-abiding while offering quality products and options to their customers.