Jan 17

California lawmakers say pot taxes must be cut to help an industry ‘on the brink’

taxes

California lawmakers on Friday revived a proposal to temporarily cut taxes on marijuana to boost a legal market that one official said is “on the brink of collapse,” drawing encouragement from Gov. Gavin Newsom as he seeks to overhaul state pot regulators.

The bill would cut the state excise tax on marijuana sales from 15% to 11% for three years while eliminating a cultivation tax for that period. Similar legislation has been shelved in the last two years, with Newsom saying he felt it was too soon after legalization to make changes to the law.

But the governor signaled last week that he might be changing his mind, proposing in his new state spending plan a shakeup of the agencies that regulate cannabis sales as well as a streamlining of the method of collecting taxes, and saying he is open to considering other measures to boost a legal industry created when California voters approved Proposition 64 in 2016.

“The governor’s office through its proposed budget has shown that it understands action needs to be taken,” said Assemblyman Rob Bonta (D-Alameda), a lead author of the new bill, who noted that an estimated 75% of marijuana sales in the state continue to come from the black market. “With these steps, we believe that we will be supporting the regulated marketplace for cannabis in California. It will also help reduce and shrink the unlicensed, illicit market.”

The tax cut was also supported by State Treasurer Fiona Ma and co-authored by three other legislators, including Republican Assemblyman Tom Lackey of Palmdale. He said Assembly Bill 1948 will “provide relief to an industry that’s clearly on the brink of collapse.”

California’s legal market has not grown as expected, a problem the cannabis industry and some state officials have attributed to factors including high taxes, bureaucratic red tape and the fact that three-quarters of California cities have banned pot shops.

Josh Drayton of the California Cannabis Industry Assn. said the new proposal “is absolutely critical to the survival of California’s regulated cannabis industry,” adding it is “necessary for regulated operators to compete against a thriving illicit market that evades the financial obligations which drive up the cost of tested and regulated cannabis products.”

Some supporters of Proposition 64 predicted a legal marijuana market in California would bring in $1 billion in annual tax revenue for the state, but the governor’s budget last week estimated only $479 million will be generated in the current fiscal year and $550 million in the budget year beginning July 1.

“I was a proponent of the initiative,” Newsom said last week. “We said it would take five to seven years to get close to that billion dollars. We are marching in that direction.”

Even so, Newsom’s new budget proposes combining licensing and enforcement at three state agencies under a new Department of Cannabis Control by July 2021.

Currently, the state Bureau of Cannabis Control licenses retailers, delivery firms and distributors and enforces the rules, while pot farms are licensed and regulated by the state Department of Food and Agriculture. Manufacturers of products including edible pot are overseen by the state Department of Public Health.

“Establishing a stand-alone department with dedicated enforcement will centralize and align critical regulatory functions to build a successful legal cannabis market, and create a single point of contact for cannabis licensees and local governments,” Newsom’s advisors wrote in the governor’s budget summary.

Details on how the agencies will be merged and operate will be released in the spring, Newsom said.

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