Should California Marijuana Taxes be Based on Potency Levels?

The cannabis industry in California is struggling, despite being larger than ever. Los Angeles marijuana lawyers know that is thanks in large part to the tight regulations and steep taxes imposed on cultivators, producers, labs, retailers and consumers. Now, some legal analysts are proposing a plan that would base tax level on how potent a product is.

In other words, the higher the concentration of a product’s THC content, the more it would be taxed. The proposal comes as state-legal businesses have been begging lawmakers for some relief from local and state government taxes. The high tax rates (a combined 50 percent for some businesses) are driving up the costs of marijuana products, which in turn are being passed onto consumers, a growing number of whom find it preferable to frequent the plentiful (and much cheaper) black market vendors.

The plan proposed by the state’s Legislative Analyst’s Office would:

• Eliminate existing marijuana business taxes (including the 15 percent across-the-board tax paid by customers when they buy).
• Replace this with a tiered tax system wherein taxes would range on the basis of the potency or the type of product itself.

This would effective address a few different issues, they say. First, it would help reduce the potential for consumers to get their hands on dangerous, high-potency pot products. Secondly, it would ease the tax burdens of retailers primarily selling low-to-moderate THC potency products. Once companies aren’t so squeezed financially, they’ll be better able to compete with the unregulated black market.

The proposal was lauded by the California Cannabis Industry Association, a group that has spent several years trying to compel state lawmakers to move away from the weight-based taxation rates for marijuana farmers. Comprehensive cannabis tax reform, the association said in a prepared statement, would give consumers incentive to buy marijuana products that are regulated. It would also make it easier for companies to be compliant and ease the burden on regulators and administrators. Ultimately, the group said this should bolster and stabilize the revenue the state takes in from cannabis taxes.

Whether the state takes this advice remains to be seen. For now at least, regulators seem to be doing the very opposite. In November, cannabis companies throughout California were shocked when the state announced it was introducing a marijuana business tax INCREASE. Our Los Angeles marijuana tax lawyers are encouraged that at least some state lawmakers are speaking out to say that simplification and reduction of taxes is an imperative if the state wants legal purveyors of the plant to survive, let alone thrive. At least one bill is expected to be on the table next year to do just that, at least temporarily.

However, California’s Chief of the Bureau of Cannabis Control, speaking recently at an industry conference, said legal cannabis companies can expect somewhat of a bumpy ride for a while, highlighting the scourge of unlawful dispensaries, the fallout of the national vaping crisis and mass industry layoffs.

But streamlining taxation of pot products seems an important piece of the puzzle if state officials truly want to see this reach a positive conclusion for the state, businesses and consumers. As it stands, the fact that local governments can add their own taxes arbitrarily has resulted in a widely varying patchwork of tax rates for businesses, creating additional opportunity for black market growers, producers and retailers.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

California analysts urge marijuana tax based on potency, Dec. 17, 2019, By Michael R. Blood, Associated Press