Report: Removing Cultivation Tax Would Double California’s Cannabis Tax Revenues

A recent study found that California could double its cannabis-derived tax revenues by removing the state’s cultivation tax, which would attract more customers by aligning industry prices closer to that of the traditional market.

Full story after the jump.

California could potentially double its cannabis tax revenue by eliminating the state’s cannabis cultivation tax, according to a new report by the Reason Foundation.

Currently, cannabis companies in California face some of the steepest tax rates in the country. The 36-page report, titled “The Impact of California Cannabis Taxes on Participation within the Legal Market,” found that by removing some of that tax burden, licensed operators would be able to price their products more competitively with the unregulated marketplace, thus drawing in more customers and ultimately, more tax revenue for the state.

“High cannabis taxes are the biggest reason California’s legal cannabis market is struggling,” said Geoffrey Lawrence, author of the study and the director of drug policy at Reason Foundation.

“State leaders could double current monthly cannabis tax revenues by 2024 by eliminating the cultivation tax. Without the cultivation tax, our data show that lower cannabis prices would increase sales of legal products, which would increase the state government’s general sales tax revenue and more than replace losses from the eliminated cultivation tax.” — Lawrence, in a press release

The study was conducted by investigating and measuring the state’s existing tax structure, examining the key factors that influence a consumer’s decision about whether to participate in the legal market (mainly price and availability), calculating a price sensitivity point by comparing California to nearby legal markets like Oregon and Colorado, and modeling the expected behavior of consumers were California’s cannabis prices to drop.

Researchers also found that illicit sales are proliferated by local ordinances banning cannabis operations across huge sections of the state, and that reducing retail excise taxes would go even further in helping the state’s licensed cannabis companies compete with the unregulated marketplace.

Click here to read the full report.

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