A California state legislative committee is set to discuss a bill on April 22 to reduce the state’s tax on its legal cannabis industry after some cities slashed local taxes on the industry to help retailers survive.
According to the bill’s author state Assemblyman Matt Haney, of San Francisco, taxes as high as 45 percent in some areas of California have suffocated the state’s infant legal cannabis industry before it has had a chance to develop, allowing states like Colorado and Michigan, which have lower taxes on the industry, to outpace the state.
Haney introduced the legislation in March to “protect the legal cannabis industry from the growing threat of the untaxed, illegal cannabis market.”
California scheduled a tax increase to take effect in July to raise the excise tax rate from 15 percent to 19 percent, a nearly 25 percent hike.
If passed, Haney’s legislation would suspend the increase and keep the state’s tax rate at 15 percent.
The bill would also enact a Medicinal and Adult-Use Cannabis Regulation and Safety Act, which is designed to provide a comprehensive regulatory framework for legal cultivation, distribution, transport, storage, manufacturing, processing, and sale of cannabis in the state.
California was the first state to legalize medical cannabis in 1996 through the voter-approved Compassionate Use Act. Colorado was the first state to legalize the drug for recreational use in 2014.
The Golden State legalized recreational use of marijuana for adults 21 and over in 2019 after voters passed the Adult Use of Marijuana Act. Use of marijuana remains illegal at the federal level.
Since the industry was legalized, California cannabis retailers and growers have struggled to compete with a growing black market. Many of them say heavy regulatory burdens, paperwork, complex and differing local ordinances, and state taxes are to blame.
“Nearly a decade after Californians overwhelmingly approved cannabis legalization, the industry is struggling under the crushing weight of a 15 percent excise tax,” said Caren Woodson, president of the California Cannabis Industry Association. “Any increase, particularly a 25 percent increase, would not only be bad public policy, but devastating to operators already on the brink.”
On a statewide level, Haney’s legislation faces strong opposition from a coalition of 98 organizations, including Youth Forward, Getting it Right from the Start, Child Action, Inc., and other nonprofit groups.
The groups say they risk losing at least $150 million per year for childcare, youth, and environmental programs.
“This translates into thousands fewer childcare slots for low-income children, fewer youth benefitting from substance abuse prevention programs, continuing environmental degradation of our watersheds, and other harms,” the organizations told the state, according to a legislative analysis.
Indigenous Justice, a nonprofit organization providing services to tribal communities, also opposed the bill.
“Repealing the excise tax increase would undermine these commitments and strip critical funding from Tribal-focused grants that support cultural revitalization, land restoration, youth substance use prevention, sacred site access, and Tribal youth leadership development,” Indigenous Justice wrote about the legislation, according to the legislative analysis.
The state distributes the funds to youth services, environmental, and law enforcement. The analyst’s office estimates $203 million will go to the Department of Social Services’ child-care program, $12 million will fund the Department of Public Health, $54 million will go to the Department of Health Care Services, and $13 million will pay for the Natural Resources Agency programs.
According to the estimates, the state’s Department of Fish and Wildlife is expected to receive $57 million, the Department of Parks and Recreation could receive $38 million, the California Highway Patrol will receive about $50 million, and the Board of State and Community Corrections could receive $44 million.
Meanwhile, Southern California’s desert cities—where the industry has boomed—are taking matters into their own hands.
Desert Hot Springs, a hub for cannabis production just 10 miles from the resort town of Palm Springs, approved cutting its marijuana retail tax from 10 percent to 5 percent on April 15.
The tax reduction will match similar action taken by the neighboring desert cities of Palm Desert and Cathedral City.
The city council voted unanimously to pass the ordinance on its first reading and will consider fully adopting it after a second reading on May 6.
