California Gov. Proposes Cannabis Industry Tax Cut

Under California Gov. Gavin Newsom’s proposal for the incoming budget year, the state may eliminate its cannabis cultivation tax but it would make up the difference by increasing excise taxes after several years.

Full story after the jump.

California Gov. Gavin Newsom (D) proposed a tax cut on Friday for the state’s heavily taxed cannabis industry but business owners say the relief wouldn’t go far enough, the Associated Press reports.

In the Newsom administration’s proposal for the budget year starting in July, the governor called for removing the cannabis cultivation tax of $161 per pound of flower. Under the plan, the missing tax dollars would be made up by increasing the state’s cannabis excise tax from 15% to 19% after three years.

Despite being the largest cannabis marketplace in the U.S., the California cannabis industry has struggled since its 2018 launch with steep tax rates that can reach as high as 50% in some jurisdictions. The taxes, coupled with steep licensing costs and other expectations, has helped to prop up the unregulated marketplace as an attractive alternative for consumers. Additionally, recent harvests by large, corporate cannabis growers have started to push down the price of wholesale flower, which has made business even more difficult for licensed growers, according to the report.

According to Nicole Elliott, director of the California Department of Cannabis Control, removing the cultivation tax would “greatly simplify tax compliance, reduce the overall tax burden for our licensees and help stabilize the legal market,” the AP reported.

But industry business leaders had hoped the tax relief would include a reduction to the state’s high excise taxes, not an increase. According to Jerrod Kiloh of the Los Angeles-based United Cannabis Business Association, “All they are really doing is shifting some taxes around, and it’s not ever going to get to the customer.” Kiloh even warned the plan could result in higher consumer prices, according to the report.

A recent report by the Reason Foundation found that

In a report titled “The Impact of California Cannabis Taxes on Participation within the Legal Market” published earlier this month, the Reason Foundation suggested that California could double its cannabis-derived taxes by eliminating the cultivation tax altogether.

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