In a move that has shocked the cannabis industry, California is hiking legal marijuana business taxes. This decision comes on the heels of many licensed marijuana companies imploring the state to reduce such taxes.
But with legal storefronts now set to face cannabis taxes nearing 50 per cent beginning January 1, the move is being seen by some as another reason pot customers will choose the Golden State’s already thriving black market. Cannabis business analysts estimate that for every dollar spent in California’s legal pot market, $3 are being spent on the illicit market.
In a statement released by the California Cannabis Industry Association, members are said to be both outraged and stunned by the decision. The group believes increased cannabis business taxes will only make trading even more difficult for those operating legally, who are already fraught with heavy fees, stringent regulation, local community bans on cannabis cultivation and sales, and a flourishing black market.
If you need legal advice for marijuana related business dealings, our Southern California cannabis business lawyers can advise you.
Tax Hike Costs Will Hit Customers at the Counter
While the tax hikes will be paid by legal cannabis businesses, ultimately the cost increase will be handed down to customers at check-out. As an example, industry insiders believe an eighth-ounce of cannabis buds will be pushed up to $50 or more in the New Year, versus the $40 to $45 one could expect to pay up until now.
At the heart of this price hike, lies a change in the markup rate. A markup rate is used to determine certain business transaction taxes, like when retailers purchase wholesale products that are then on-sold to consumers. In this case, the industry will see a markup rate increase of more than 30 per cent.
According to the California Department of Tax and Fee Administration, the agency analyzed thousands of marijuana transactions via California’s Track-and-Trace system, before determining the new rate.
On a different front, tax rates on marijuana cultivation are also increasing, only this time thanks to inflation. A little more than a four per cent increase will see tax on an ounce of dry buds raise from $9.25 to $9.65 in the New Year.
With this tax hike, customers will surely feel the price increase at the register, and may well then choose to shop on the black market instead. And while this change may result in increased tax revenues, the question is, at what cost? Negative business outcomes for licensed pot outfits already struggling to compete with illegal traders, and possibly putting more lives at risk, given that we know counterfeit vape products are still readily for sale via illicit sellers.
Many legitimate cannabis business owners would have welcomed California cutting marijuana taxes, to both help business, and encourage unlicensed businesses to move over into the regulated space. Instead, this decision could make business even tougher for those who are licensed, and law abiding, but desperately trying to stay afloat.
About Cannabis Law Group
The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 714-937-2050.
California Department of Tax and Fee Administration