Industry leaders say legal operations still face uphill battle against underground market.
LOS ANGELES — California’s licensed cannabis businesses are getting a tax cut — and they are disappointed about it.
Democratic Gov. Gavin Newsom raised hopes in the cannabis world this year when he called for an overhaul of the state’s pot taxes. But the cuts that cannabis-friendly lawmakers managed to eke out were modest — far short of the boost they hoped to deliver to legal weed businesses getting outcompeted at every turn by the booming underground economy. Many see it as a missed opportunity.
“We’re going to continue to fuel the illicit market until we acknowledge that there’s over regulation, over taxation of something that we claim we want to see succeed, a legal cannabis market,” said state Sen. Scott Wiener (D-San Francisco) in a floor speech critiquing the tax-reform bill.
Frustrations have been building steadily since voters legalized recreational cannabis in 2016, with Newsom’s backing. Rather than watching businesses rush to enter the market, the nascent legal industry has languished behind an expansive network of off-the-books pot shops and tucked-away farms that fuel a multi-billion-dollar enterprise.
For licensed operations trying to survive, the reason is simple: The taxes are too high.
The legislation Newsom signed into law last month won’t lessen the tax burden for many businesses, at least for very long. It eliminates a weight-based tax for cannabis growers, but leaves a 15 percent tax on retail sales — and gives state officials the authority to eventually raise retail taxes to make up for the lost cultivation revenue.
“This is actually a pretty good landing spot, knowing the politics, but does it solve the industry’s problems? Hell no, it doesn’t,” said Adam Spiker, executive director of Southern California Coalition, a cannabis trade association.
Uprooting an entrenched illicit cannabis market continues to be a problem nationwide, despite three-quarters of states having legalized either recreational or medical sales. Underground purchases were worth $70 billion in 2021, compared to $26.5 billion for the legal industry, according to estimates from New Frontier Data. [Read More @ Politico]
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