Skip to main contentSkip to main content
You have permission to edit this article.
AP top story

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

Gov. Gavin Newsom is proposing a temporary tax cut for California's ailing marijuana industry, but businesses say it falls short of what's needed to revive the shaky pot economy

  • Updated
  • 0

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 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.


Be the first to know

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

Authorities say the body of a missing Oakland woman killed nearly 18 years ago by her then-boyfriend was found by construction workers in a shallow grave. The Alameda County District Attorney’s Office said in a statement Wednesday that Cynthia Alonzo, then 48, was last seen getting into the car of Eric Mora on Thanksgiving Day 2004. Alonzo and her then-boyfriend were going to her mother’s house in San Francisco but she was never seen again. On May 4, a work crew at the corner of 7th and Maritime streets on the Oakland Army Base uncovered a body wrapped in tarps in a shallow grave. Mora confessed to killing Alonzo and in June 2017 was sentenced to 11 years in state prison.

Police say two women died in San Francisco after a taxi cab jumped the curb following a collision with another vehicle then struck pedestrians on a sidewalk at a busy street corner. The crash happened around 4:30 p.m. Sunday in the South of Market neighborhood. San Francisco police said the taxi was involved in a collision with a Mercedes, then ended up on the sidewalk. Officer Robert Rueca said two female pedestrians were pinned underneath the taxi and died at the scene. A man who was standing with the women was taken to a hospital along with the taxi driver.

Police say one person was killed and three others were wounded in a shootout among multiple gunmen at an East Palo Alto park where dozens of children were playing. East Palo Alto Interim Police Chief Jeff Liu said Wednesday that more than 30 shots were fired during the shootout Tuesday at Jack Farrell Park where children ran for their lives screaming for help. He says there were at least 60 children playing in the park at the time of the shooting. A girl was recording a video of herself playing a game of tag with other kids in the park when the gun battle broke out. The girl kept recording as she ran across a field and shouted, “Help me!”

Southern California police investigating after a man was killed and eight people were wounded during a shooting at a large party held at a strip mall hookah lounge. San Bernardino police say that officers dispatched late Friday found man who had been killed in the strip mall parking lot in the city east of Los Angeles. Eight people were wounded. Police say their injuries did not appear to be life-threatening. Two people were detained and one was arrested on suspicion of possessing a stolen gun. They were not identified.

Authorities say four people fell off a Southern California ocean cliff in the early morning darkness. A man was killed Monday and two women were critically injured. Police in Palos Verdes Estates say the fourth person was a man who suffered  minor injuries, climbed back up from the beach below and alerted a passing police officer at about 4:30 a.m. The man told the officer he and his friends had fallen down the cliff. A 25-year-old man died at the scene. Police are investigating the event as an accident. A trail runs along the bluff top about 300 feet above the Pacific Ocean.

Authorities are investigating after a toddler was killed when his father accidentally ran him over with an SUV at their Southern California home. The California Highway Patrol says the accident occurred shortly after noon Wednesday on the driveway of the residence in  Riverside. The boy was transported to a hospital, where he was pronounced dead. The Los Angeles Times says neither father nor son has been identified.

Authorities say a substitute teacher has been arrested on suspicion of molesting four female students in a classroom at a Southern California elementary school. Police say the alleged victims, ages 8 and 9 years old, told investigators the teacher touched them in appropriately in separate incidents at Adams Elementary in Santa Ana. The 69-year-old man posted $100,000 bail after being arrested on suspicion of child molestation. Detectives believe there could be more alleged victims.

Authorities say a 64-year-old woman found dead in a cell at Sacramento County Main Jail had experienced an unspecified medical emergency. The sheriff's office says guards discovered the dead inmate during a cell check early Tuesday. The woman had been in custody since March 2 on felony domestic violence charges. Coroner’s officials will determine the cause of death. Authorities do not believe COVID-19 or foul play was a factor. The woman’s identity was withheld pending family notification.

Get up-to-the-minute news sent straight to your device.


News Alerts

Breaking News