The robust black market is to blame for California’s first year of cannabis sales falling woefully short of expectations in 2018, industry leaders say, and now a group of bipartisan lawmakers is hoping to jumpstart the state’s legal marijuana marketplace and level the playing field by slashing taxes.
Introduced on Monday by Democratic Assemblyman Rob Bonta of Oakland, AB 286 aims to encourage the public to buy from dispensaries rather than illicit dealers by temporarily reducing the 15 percent tax consumers pay at the retail counter to 11 percent and eliminating the $148 per pound of pot farmers pay for three years.
“The black market continues to undercut businesses that are complying with state regulations and doing things the right way,” Bonta said. “This very strategy has been shown to actually increase overall tax revenue in other states.”
On Jan. 1, 2018, California broadly legalized marijuana use for adults after overwhelming support for Proposition 64, which promised to fill state and local coffers while helping to eliminate the state’s illegal operators. But far fewer licenses and tax revenues have been collected than expected and legal businesses point to the state and local taxes and red tape as the reasons.
Opponents of Proposition 64 cautioned that it could lead to a thriving black market for unregulated tax-free marijuana.
According to cannabis retail analyst GreenEdge, legal California sales fell to $2.5 billion in 2018 from $3 billion in 2017 when only medical marijuana was legally available. The latest available data from the California Department of Tax and Fee Administration and Gov. Gavin Newsom’s revised budget reflect the state’s sluggish sales; the state collected $234 million in taxes between January and October, and the new budget for the fiscal year that ends June 30 estimates $355 million in annual tax revenues — a $275 million reduction from previous estimates.
In a joint statement released Thursday, Assembly Republicans said Capitol Democrats must have been “smoking something to enhance their creativity” in order to come up with AB 286, though it’s worth noting the bill is supported by legislators from both sides of the aisle.
“Republicans think that if you’re a business selling the less-exciting kind of brownie (or anything else for that matter), it’s high-time the Legislature rolls up a tax cut for you,” the statement said. “We hope the legal weed industry doesn’t bogart these low taxes and all struggling businesses in California get to see an ounce of tax reform light up their bottom lines.”
District 12 Assemblyman Heath Flora wasn’t surprised that California’s cannabis industry hasn’t lived up to the hype.
“Yeah, we also learned that the sky is blue,” he responded when asked to comment on reports that high taxes might be a reason for the state’s flourishing black market.
Flora went on to say that he is open to supporting the bill if it leads to wider discussions about the negative impact that high taxes have on consumers and the economy.
Newly-elected State Treasurer Fiona Ma supports the bill, stating that cannabis businesses deserve the same treatment as any other new industry.
“We are helping legal cannabis businesses with their transition into the marketplace, just like we would for ay startup industry,” Ma said.
The State Treasurer’s Office estimates that without current tax barriers, cannabis taxes could generate $8 to $20 billion in annual revenue for California.
During recreational marijuana’s first year of legality in California, 9,445 temporary licenses were issues to dispensaries from more than 19,000 applications received.