Tax Cut For California Pot Industry Falls Short Of What's Needed

California’s governor on Friday proposed a temporary tax cut for the state’s struggling legal marijuana industry, but businesses said it falls far short of what’s needed to revive a foundering pot economy, Michael R. Blood reported for the Associated Press (AP).

Photo Insert: A cannabis plantation in California

Broad legal sales began in California in 2018, but the industry has been burdened by hefty taxes that can approach 50% in some areas, costly regulation, and competition from a flourishing illegal marketplace that industry analysts estimate is at least twice the size of the legal one.

Meanwhile, a glut of cannabis from corporate-scale farms has sent wholesale prices into a tailspin, leaving some growers unable to make a profit.

California was once envisioned as a national model for legal sales, but industry leaders warned Democratic Gov. Gavin Newsom in December that the state’s licensed industry was verging on collapse and needed immediate tax relief and a swift expansion of retail outlets to survive.

In a proposal to the Legislature for the budget year that starts in July, the Newsom administration recommended eliminating the much-despised cultivation tax, which is set at $161 on a pound of buds.

But to make up for those lost funds, the state after three years would raise the excise tax imposed on retail cannabis purchases to 19%, up from the current 15%. But an excise tax jump could come sooner.

If the state isn’t taking in enough cannabis tax money to support a range of education, law enforcement, and other programs —$670 million each year — the excise tax could be raised up to cover that gap as soon as January 2024, though not necessarily to the 19% level. Additionally, the state is putting up a one-time $150 million stream of funds to help cover those costs.

The tax debate presents a dicey political challenge for Newsom, who is seeking a second four-year term in November. He’s being pressured by financially struggling businesses that want a deep tax cut, but youth and other organizations that benefit from those dollars don’t want to see that funding dry up.

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