The Taxman Cometh: California Cannabis Businesses Unlikely to See Relief
It’s time for California to take a serious look at taxes that state and local governments are imposing on cannabis business owners. Some legislators agree, but others think the higher taxes should stand, at least for a while longer. For now, the current tax rate will remain, as an assembly bill addressing cannabis taxation failed to advance out of committee, according to an Associated Press report.
AB-3157 seeks to amend The Control, Regulate and Tax Adult Use of Marijuana Act, which currently sets the excise tax rate at 15 percent of the average market price. The new proposal would drop the excise tax rate to 11 percent and suspend the cultivation tax, with each expiring June 21, 2021. Right now, when excise and cultivation taxes are combined with sales tax, county, and city taxes the total tax rate can be almost 50 percent. Some fear this high of a tax rate is driving people to purchase marijuana on the black market, instead. There is some compelling evidence to back that claim.Our Los Angeles cannabis business lawyers understand one of the enticing promises of recreational marijuana legalization was the boon of taxes in government coffers. Extra money could be used to bolster infrastructure, city and state programs, and assist with cannabis education and drug abuse prevention programs. However, paying up to 50 percent in taxes is an astronomical hurdle for many businesses, particularly new ones trying to get off the ground. That could explain why tax revenue related to cannabis was much lower than projected in the first quarter of fiscal year 2018. Excise tax in the first three months came in at just under $34 million. At this pace, it is unlikely the state will bring in the original prediction of $175 million for the year.
Californians are certainly getting their marijuana from somewhere, though, and if not at the licensed retailers, then where? Assemblyperson Tom Lackey, co-author of the new bill, says its the black market and that the oppressive tax rate is to blame. By lowering the excise tax rate, marijuana businesses would have a more even playing field with unauthorized sellers, helping to boost already licensed businesses and encourage unlicensed businesses to come into the fold as well. The bill was stalled in committee by assembly members seeking more evidence of a connection between the tax rate and black market. Temporarily adjusting the excise tax, however, would be the most efficient way of testing the market, while also lending a hand to local businesses.
It can be overwhelming for new business owners to sort through all that is required of them to satisfy legislators, while also providing a solid experience for their customers. It takes skill and experience to know how to create a successful business plan that takes into account state and local taxes, additional fees related to testing and distribution, and still remains in compliance with regulations and laws. That’s exactly what our marijuana business attorneys in California have to offer: the skill and experience you need to put you on a path to success. Cutting corners or making poor decisions early on can be extremely costly for businesses down the road. Our legal team can make sure you make smart decisions early on to help keep your business strong down the road.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients, defendants, workers and those facing criminal marijuana charges. Call us at 949-375-4734.
California Gov. Jerry Brown’s New Budget Says Pot Revenue is ‘Slower than Anticipated,’ May 11, 2018, By Jeff Daniels and Chloe Aiello, CNBC
More Blog Entries:
Tax Bill Would Offer Relief to Cannabis Businesses and Consumers, March 21, 2018, Cannabis Law Group