When it comes to cannabis regulation, California has long been an example for others to follow. It was one of the first places in the world to allow medical weed, boasting a nascent industry around the plant. Yes, California could have one of the largest cannabis markets in the US (or even the world!)… if only it weren’t for those damn taxes.
For years, the enviable size of California’s weed industry has been rivaled only by its crushing tax burden. Remember, we’re talking about one of the states with the highest taxes in the country, which, coupled with complicated regulations, undermine the growth of cannabis businesses, both small and large.
In fact, a 2022 report posited that cannabis tax revenue could double in California if cultivation taxes were simply eliminated. This situation has not only led to a stifled and stagnant market, but has fueled the illegal market, which can offer more competitive prices without being tied to cumbersome regulations and punitive taxes.
Cannabis Taxes in California: What’s Going On
From bad to worse, June brought a bitter announcement: these taxes would increase by a baffling 25%. But a saving grace also came, albeit perhaps short-lived: last week, Governor Gavin Newsom signed a law to halt this increase until at least October 2028.
According to Marijuana Moment, the law that went into effect yesterday was proposed by Assemblyman Matt Haney (Democrat). At the time, he stated that “California’s cannabis economy can bring enormous benefits to our state, but only if our legal industry is given a fair chance to compete against the untaxed and unregulated illegal market.” This law, in his words, “helps level the playing field. It protects California jobs, keeps small businesses open, and ensures that our legal cannabis market can grow and thrive the way voters intended.”
In fact, the law specifies that its main objective is to provide “immediate” tax relief to California’s battered cannabis industry. But how will they get around to this?
Under the new law, the California Department of Tax and Fee Administration (CDTFA) must join forces with the Department of Finance to adjust the cannabis excise tax rate for cannabis purchasers or products. This is specified as being based on the “additional percentage of the gross receipts of any retail sale by a cannabis retailer that the department estimates will generate an amount of revenue equivalent to the amount that would have been collected in the previous fiscal year.”
The CDTFA must also file an annual report detailing the amount of gain or loss in cannabis excise tax revenue resulting from the implementation of this law. According to the text, this will help track the measure’s effectiveness.
The move also fits Governor Newsom’s broader record of supporting the easing of pressure on the cannabis industry. And, true to form, he hasn’t shied away from theatrics, recently making headlines by mocking Donald Trump in a tongue-in-cheek tweet. There, he presented himself as the “leader of the free world” in the face of the “Washington shutdown,” with a tongue-in-cheek ‘platform’ that includes, among other things, legalizing cannabis. He also proposed a public healthcare system, childcare, and free eggs, all in capital letters and with a histrionic tone that mimicked Trump’s usual style.
