California’s cannabis industry is struggling to compete with the persistent unlicensed market because of a patchwork of jurisdictions allowing sales and taxes that many say are burying their businesses.
On Wednesday, a group called the Save California Cannabis Coalition held a news conference that brought together lawmakers, advocates, and members of the cannabis industry to place pressure on law and policy makers to cut cannabis taxes. The conference came after they sent a letter to Gov. Gavin Newsom in December to call attention to the cannabis tax burden in California, followed by a rally in January.
Nancy O’Malley, District Attorney for Alameda County, which includes Oakland, summed up much of the problem: “It’s cheaper to buy from a non-regulated seller. No taxes to pay on the part of the seller.” Unlicensed operators don’t pay licensing costs, nor the costs for their products to be tested to meet quality control standards. “What we continue to see is the underground illegal market flourishing, where the profits of the sellers are considerably higher than the regulated market, and the public safety dangers of the unregulated market continue to be great.”
Newsom signaled support for tax reform for the cannabis industry when he announced his budget plan in January, but he hasn’t released any other specific details.
“Cannabis tax reform requires action from two-thirds of the Legislature and that’s why he has made it clear he intends on working with them to identify a rational solution,” a spokesperson for Newsom told Cannabis Wire by email, in response to questions about where conversations with lawmakers stand.
Assemblymember Blanca Rubio, who represents a region east of Los Angeles that includes West Covina, said she voted in favor of Proposition 64, the 2016 ballot initiative to legalize adult use. She reiterated that the problem with the unregulated cannabis market is not new, and that she’s pushed for laws that impose criminal penalties on these operators for the past three years. Nonetheless, she said, the illicit market has “thrived.”
This year, Rubio said, she is “committed” to working on legislation to suspend the cannabis cultivation tax and lower the excise tax so that “all licensees, including social equity, can be sustainable.”
California’s cultivation tax is by weight, which, cultivators say, means that even if the value of their crop declines, which it has amid competition with the unlicensed market, their tax burden remains consistent. The excise tax, which is a percentage of price tax, is imposed on retailers.
State Senator Lena Gonzalez, who represents much of the western part of Los Angeles County, says she plans to “elevate” the issues of cannabis taxes with the state’s Budget Committee.
“The numbers just don’t add up. And they don’t add up in a year where we’ve seen an unprecedented surplus,” she said. “So, if there was ever a time to ensure that we have tax breaks and we help the legal market survive, it’s now.”
Editor’s note: This story has been updated to include comment from Newsom’s office.