A proposed bill in California would suspend the state’s cannabis cultivation tax while increasing the retail excise tax in order to maintain neutrality with state revenues. The measure, co-sponsored by Democrat Assemblymember Bill Quirk and Republican Assemblymember Tom Lackey, comes following an increase in the state’s cultivation tax, which took effect January 1.
“Previous efforts to initiate tax relief for the legal cannabis industry have, unfortunately, failed passage in the Legislature. The reality is that a viable approach will have to account for its impact on state revenue. This proposal to consolidate taxes on cannabis is crucial to fulfilling fiscal responsibilities of the state while successfully phasing out the cultivation tax, which is applied whether or not the product is actually sold.” – Quirk in a press release
The cultivation tax is imposed at the beginning of the supply chain and is included in the wholesale cost of goods as it passes through manufacturers and distributors. The tax compounds as other state and local taxes apply, which enlarges the original tax burden by as much as 50% by the time it reaches end consumers, Quirk’s office said. The state and local taxes imposed on cannabis is one of the many factors that make legal cannabis more expensive than cannabis from the illicit market.
Quirk’s office pointed to a 2019 report by the state Legislative Analyst’s Office, How High? Adjusting California’s Cannabis Taxes, which found that the current weight-based cultivation tax is ineffective towards reducing harmful cannabis use, stabilizing tax revenues, and easing industry compliance. The report ultimately recommended the elimination of the cultivation tax and estimated that a revenue-neutral approach would likely suffice to fund programs identified under the state’s legalization law.
The bill was introduced on February 17 but has not yet been sent to any committee; however, according to state data could be heard in a House committee on March 20. If approved. the California Department of Tax and Fee Administration would implement the change by July 1, 2023.