California cannabis businesses angry over tax raise may cause a disruption in our cannabis market. Many cannabis operators are frustrated and tired of trying to compete with illegal cannabis markets while paying growing taxes. As a result, many businesses are considering taking matters into their own hands. Some are even suggesting their own “California Weed Party”, reminiscent of the Boston Tea Party. These actions on behalf of business operators could cause a disruption between the legal cannabis market and the state.
California Cannabis Businesses Angry Over Tax Raise
California cannabis businesses have organized together to do something about the growing taxes they have to face. Near the end of 2021, about 30 cannabis leaders from several places across the state got together to address this issue.
They signed a letter asking the state to eliminate the tax paid by growers, as well as offer a 3-year reprieve on tax with point-of-sale transactions and open up more retail opportunities. This petition is addressed to multiple California officials. These include Gov. Gavin Newsom, Sen. President Pro Tempore Toni Atkins, and Speaker of the Assembly Anthony Rendon.
They hope to affect next year’s state budget. Any change in the taxes on cannabis would require a two-thirds vote by the California Legislature.
Since 2016, when voters passed prop 64, all cannabis products that were legally sold in California come with a 15 percent excise tax. Additionally, Cultivators must also pay a tax based on the weight of cannabis they sell. As a result, this raises the retail price. Moreover, there’s a regular state sales tax, which typically lands between 8 to 10 percent. To add more on top, cities, and counties that permit marijuana businesses may add local cannabis taxes.
Adding all of these together, it’s not hard for a California cannabis business to pay an estimated 45% in taxes. With multiple cannabis businesses booming regardless of the COVID-19 pandemic, the tax revenue could add up to $1.3 billion this year.
California cannabis businesses have grown tired, and state they’ll take matters into their own hands if officials don’t help them.
Cannabis Businesses Proposed California Weed Party
California’s cannabis industry is ready to fight back in ways it can. In fact, this is where the idea of a “California Weed Party” came from. The name is a reference to the Boston Tea Party that occurred back in 1773.
This fundamental event in U.S.’s history took place because of unfair taxation from Great Britain. This idea is carried over. Although California cannabis leaders are not planning to throw their products into the Pacific Ocean, they do plan to protect themselves.
Jarred Kiloh is the owner of a licensed cannabis store in Los Angeles and serves as president of the United Cannabis Business Association trade group. He’s been in the cannabis business for 20 years, working in the medical field before 2016’s legislative change. He expresses his concerns about the tax raise and its effect on the industry.
Kiloh explained to others in the cannabis industry the possibility of placing all of their tax money into an escrow account instead of handing it over to the state. This was 2 years ago, and was told it was “too drastic.”
Similarly, Michael Steinmetz, who is the founder and CEO of Flow Kana cannabis, discussed doing something similar. On November 22, he published an op-ed on Medium where he recommended his board do that with its cultivation taxes after July 1.
On the other hand, there are those who advise against this. Hilary Bricken is a cannabis industry attorney in Los Angeles. She does not recommend clients refuse to pay their taxes. If cannabis businesses do so, they would be in violation of “all kinds of tax laws and regulations,” which could then lead to their licenses getting suspended by the state.
The Illegal Cannabis Market
Another problem for cannabis businesses that function legally is the illicit market in California. Merchants struggle to compete with illicit operators who do not have to follow the rules. Due to this freedom, it makes it difficult for legal businesses to set cheaper prices than the illicit market.
Cannabis businesses also do not feel support from the state in combating the illegal market. In fact, cannabis tax revenue is not used to battle illicit competition. Moreover, even within the world of licensed operators, the support for eliminating the illicit market is not unanimous. This is because many licensed operators actually started off in the illegal market.
The illegal cannabis market in California is a serious issue, aside from hurting the legal market. Underground cultivators, manufacturers, and sellers are linked to serious crimes, fire dangers, and environmental hazards.
