Will Lower Taxes Sideline Black Market Marijuana?

Will Lower Taxes Sideline Black Market Marijuana?

California’s historically high tax rates have, at times, driven people and businesses out of the state. Not surprisingly, the excessive taxes associated with the state’s burgeoning legal marijuana industry have driven a steady number of California’s cannabis consumers to the black market. Now, a couple of lawmakers want to do something about it.

California legalized medical marijuana in 1996, and voted to legalize recreational marijuana in November of 2016. And while adult-use weed is projected to bring in an additional $1 billion in California marijuana taxes, the additional taxes that come with it are also causing many pot buyers to buy their supplies from less-than-legal suppliers.

As we’ve mentioned before, a Motley Fool report shows that California’s cannabis growers are subject to a state cultivation levy of $9.25 per ounce of cannabis flowers, or $2.75 per ounce of cannabis leaves. There is also a 15 percent excise tax added onto the final product. Both of those taxes are on top of the nation’s highest base sales tax rate of 7.5 percent, as well as local business taxes that range from 7.75 percent to 9.75 percent. According to Fitch Ratings, the total state, local, and other taxes can make the aggregate tax on weed more than 45 percent in some regions of California.

In an attempt to bring some of California’s canna-biz out of the shadows, two state lawmakers have introduced a measure to lower the state’s cannabis tax rate.

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As Marijuana Business Daily reports, Assemblyman Tom Lackey, a Republican from Southern California, and Oakland Democrat Rob Bonta have co-sponsored an amendment to an existing bill, AB 3157, that would lower the cannabis tax rate for three years, which should lead to retailers charging less for legal products. Three other Democratic lawmakers helped to write the measure.

The bill would drop the state excise tax on cannabis products from 15 percent to 11 percent for the next three years, as well as suspend the state’s cultivation tax. According to analysis by New Frontier cited in a news release from Lackey’s office, the measure would essentially cut the prices that consumers pay for medical and recreational cannabis products by roughly 9 percent.

AB 3157 “reduces the tax burden on the licensed cannabis market during this transition period, keeping customers at licensed stores and helping ensure the regulated market survives and thrives,” Bonta said in the release.

Stay tuned for the Sugar Leaf for updates on this and other pending legislation.