A newly introduced bill could significantly cut the tax rates on California cannabis.
Legal sales of cannabis didn't do as well as many had hoped they would last year. For some experts, the biggest reason for the lackluster sales in the legal market is overtaxation. Legal marijuana products in the Golden State are subject to a 15 percent tax at the point of sale, on top of as much as $9.25 per ounce in taxes levied on cultivators, which also serves to drive up the end price consumers have to pay. That makes buying from the black market much cheaper—especially for people in cities that have chosen to ban legal sales.
"The whole aim of legalization is to compete with the illicit market and to get people to buy from the regulated establishments," Troy Dayton—CEO of Arcview Group, a cannabis investment and research firm based in Oakland—told CNBC. "You can't do that if the taxes are so high and onerous that people are driven out of that market."
Dayton thinks the current tax rate is why California set a terrible precedent for legal states.
"California is the first state where the total retail sales went down after they transitioned to adult use because it's so complex and the taxes are so high and everything else."
To make California's legal cannabis market more competitive with illicit channels, State Assembly member Rob Bonta (D-Alameda) has introduced the Temporary Cannabis Tax Reduction bill. If passed, the bill would reduce excise tax for marijuana retailers from 15 to 11 percent, and remove all taxes on cultivation through to 2022.
"AB 286 is an important step to ensure that we protect legitimate taxpaying businesses and stop the illegal black market in California," Bonta said yesterday at a press conference following the bill's introduction.
The new legislation already has the support of California State Treasurer Fiona Ma. She too believes that limiting taxation on the legal market is the most effective way to undercut illicit sellers.
"We don't tax start-up businesses [from other industries] when they start," Ma said. "We need to do better."
Of course, the tax rates would be hiked back up in a few years time. But the hope is that by then the legal market would be in a more dominant position, and consumers would be comfortable with paying more.