Tax cut for California pot industry: Too little, too late?

May 13, 2022, 1:11 AM | Updated: 4:42 pm
FILE - A grower at Loving Kindness Farms attends to a crop of young marijuana plants in Gardena, Ca...

FILE - A grower at Loving Kindness Farms attends to a crop of young marijuana plants in Gardena, Calif., on Dec. 28, 2018. California Gov. Gavin Newsom will propose a temporary tax cut for California's marijuana industry, but businesses say it falls short of what's needed to revive the shaky pot economy. Broad legal sales began in California in 2018 but the industry has struggled with hefty taxes, regulation and competition from a vast illegal marketplace. The administration will recommend eliminating the cultivation tax. But a later increase would come in the cannabis excise tax to make up for those funds, possibly as soon as 2024. (AP Photo/Richard Vogel, File)

(AP Photo/Richard Vogel, File)

LOS ANGELES (AP) — 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.

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, which 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 — a total of $670 million each year — the excise tax could be stepped 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.

Other provisions in Newsom’s plan include about $20 million for grants to communities to accelerate licensing for retail shops. While cannabis is legal in California, many communities have either banned it or not set up local licensing programs for markets to operate. There are less than 1,000 retail shops, down from about 8,000 before broad legalization kicked in, businesses say.

Overall, the governor’s proposed changes would “greatly simplify tax compliance, reduce the overall tax burden for our licensees and help stabilize the legal market,” said Nicole Elliott, director of the state Department of Cannabis Control.

If approved, the plan would represent the first change in tax policy since legal sales kicked off. However, some taxes, including cultivation, have increased over that time.

The plan disappointed leading businesses, which had been seeking elimination of the cultivation tax, along with a cut in the excise tax imposed on retail sales to 5%, down from 15%, among other changes.

Jerred Kiloh of the United Cannabis Business Association, a Los Angeles-based trade group, said the plan would not allow companies to reduce steep consumer prices that have been driving buyers into the underground market, where taxes are not imposed and prices are cheaper.

And it’s even possible the plan could result in higher costs for consumers at the retail counter, Kiloh warned.

“All they are really doing is shifting some taxes around, and it’s not ever going to get to the customer,” Kiloh added.

Cannabis is covered by a range of state taxes, and it also can be taxed at the local level. Currently, state taxes include a cultivation tax on buds, leaves and plants, the 15% excise tax on retail sales and the usual sales tax.

Lindsay Robinson of the California Cannabis Industry Association viewed the plan as an initial step that didn’t do enough to crack down on illegal sales. “It’s kicking the can down the road,” she said.

There will be no quick fix. Speaking with reporters in Sacramento, Newsom said the proposal marked “the beginning of a process” to force illegal operators into retreat that would take years.

The proposal is subject to review in the Legislature, where it could be modified.

Cannabis remains illegal at the federal level, though most Americans live in states with at least some access to legal legal marijuana.

It’s difficult to make state-by-state comparisons on marijuana tax burdens because many different approaches are used, and some states limit sales only to medicinal marijuana. In Washington state there is a 37% excise tax on broad legal sales. When New York opened the way for broad legal sales last year — a process that is still unfolding — the levies included a tax based on the level of THC, marijuana’s active ingredient.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Associated Press

Man who shot protesters in suburban Denver gets jail time

DENVER (AP) — A man who shot and wounded two demonstrators while apparently aiming at a Jeep that was headed toward the crowd during a protest to bring attention to police violence in suburban Denver in 2020 was sentenced Tuesday to 120 days in jail followed by five years of probation. Samuel Young, 24, had […]
20 hours ago
Associated Press

$121.5M settlement in New Mexico clergy sex abuse scandal

SANTA FE, N.M. (AP) — One of the oldest Catholic dioceses in the United States announced a settlement agreement Tuesday to resolve a bankruptcy case in New Mexico that resulted from a clergy sex abuse scandal. The tentative deal totals $121.5 million and would involve about 375 claimants. The proposed settlement comes as the Catholic […]
20 hours ago
Australia's Prime Minister Scott Morrison speaks at a housing development near Geelong, Wednesday, ...
Associated Press

Australian leader won’t say who might attend Tokyo summit

CANBERRA, Australia (AP) — Australia’s Prime Minister Scott Morrison on Wednesday would not say who might represent the nation at a summit with U.S., Indian and Japanese leaders in Tokyo just three days after Australian elections on Saturday. Prime Minister Scott Morrison said there were “conventions in place” to deal with the election but did […]
20 hours ago
WNBA star and two-time Olympic gold medalist Brittney Griner leaves a courtroom after a hearing, in...
Associated Press

State Dept pushing to see Griner, NBA Commissioner weighs in

The State Department said Tuesday that it still pushing to have regular contact with WNBA star Brittney Griner of the Phoenix Mercury, who has been detained in Russia for nearly three months. A consular official was able to meet with Griner last week, when her pre-trial detention in Russia was extended for one month. Griner […]
20 hours ago
Associated Press

Tropical cyclone blacks out 182,000 homes in southern Brazil

SAO PAULO (AP) — Tropical Cyclone Yakecan hit Brazil’s southern state of Rio Grande do Sul and authorities said about 182,000 homes were without electricity Tuesday night. Local utility CEEE Equatorial said on its social media channels that it had all its staff out dealing with damage from the storm, which blew trees and other […]
20 hours ago
Fire rages along a ridgeline east of highway 518 near the Taos County line as firefighters from all...
Associated Press

New Mexico fires prompt forest closures; governor seeks aid

ALBUQUERQUE, N.M. (AP) — New Mexico’s governor said Tuesday that given the ferocity and swift movements of a record-setting wildfire burning in the northeastern part of the state, the damage will be significant with estimates of burned homes and other structures likely to range between 1,000 and 1,500. Gov. Michelle Lujan Grisham stressed that was […]
20 hours ago

Sponsored Articles

...

Anacortes – A Must Visit Summertime Destination

While Anacortes is certainly on the way to the San Juan Islands (SJI), it is not just a destination to get to the ferry… Anacortes is a destination in and of itself!
...

Ready for your 2022 Alaskan Adventure with Celebrity Cruises?

Celebrity Cruises SPONSORED — A round-trip Alaska cruise from Seattle is an amazing treat for you and a loved one. Not only are you able to see and explore some of the most incredible and visually appealing natural sights on the planet, but you’re also able to relax and re-energize while aboard a luxury cruise […]
...

Compassion International Is Determined to ‘Fill’ a Unique Type of Football ‘Stadium’

Compassion International SPONSORED — During this fall’s football season—and as the pandemic continues to impact the entire globe—one organization has been urging caring individuals to help it “fill” a unique type of “stadium” in order to make a lasting difference in the lives of many. Compassion International’s distinctive Fill the Stadium (FtS, fillthestadium.com) initiative provides […]
...

What are the Strongest, Greenest, Best Windows?

Lake Washington Windows & Doors SPONSORED — Fiberglass windows are an excellent choice for window replacement due to their fundamental strength and durability. There is no other type of window that lasts as long as fiberglass; so why go with anything else? Fiberglass windows are 8x stronger than vinyl, lower maintenance than wood, more thermally […]
...

COVID Vaccine is a Game-Changer for Keeping our Kids Healthy

Snohomish Health District SPONSORED — Cheers to the parents and guardians who keep their kids safe and healthy. The dad who cooks a meal with something green in it, even though he’s tired and drive-thru burgers were tempting. The mom who calms down the little one who loudly and resolutely does NOT want to brush […]
...
Experience Anacortes

Coastal Christmas Celebration Week in Anacortes

With minimal travel time required and every activity under the sun, Anacortes is the perfect vacation spot for all ages.
Tax cut for California pot industry: Too little, too late?