GREEN MARKET REPORT: California Cannabis Industry Owes State a Quarter Billion Dollars in Taxes

With penalties and fees, the money owed to the state could top $500 million.

By John Schroyer

The California cannabis industry as a whole owes the state a quarter billion in unpaid taxes, according to state data and industry experts. With added fees, that total could easily balloon into a $500 million tax tab.

To combat the rising debt trend, collections efforts appear to be ramping up, even against companies that have gone out of business.

As of Dec. 2, the cannabis sector as a whole was carrying $250,410,890 in unpaid sales and cannabis taxes, out of a $4.4 billion total in taxes due, according to data from the California Department of Tax and Fee Administration (CDTFA).

But the amount due from cannabis operators could easily double when penalties and interest are tacked on, said tax attorney Regina Unegovsky…

But the industry-wide tax tab will almost certainly keep growing, said Jerred Kiloh, the owner of L.A. cannabis shop The Higher Path, who also serves as president of the United Cannabis Business Association (UCBA).

“That’s just back taxes. Not future taxes,” Kiloh said of the $250 million tab.

With the tax debts added in, the entire debt bubble facing the industry could easily be more than $1 billion, he said.

“The industry now is in a much deeper decline than we’ve ever seen, so you could just double that for the third and fourth quarter of 2022, on the amount of taxes owed,” Kiloh said, referring to the $30 million in unpaid taxes from the third quarter of this year.

“If (the CDTFA has) got that much debt … it’s even more of an indicator of how much worse it is than the debt bubble side of things between licensees,” he said.

Kiloh also said there’s a hidden danger within the tax debt data: If state cannabis tax revenues fall below a certain threshold, it could trigger an excise tax increase for the cannabis industry, boosting the current rate of 15% up to 19%.

That’s a provision that was worked into Assembly Bill 195, which Gov. Gavin Newsom signed earlier this year. The bill eliminated the state cannabis cultivation tax and will shift excise tax collections to retailers from distributors as of January.

“We’re on the hook for higher taxes if we can’t meet a baseline that was never really determined,” Kiloh said. “That’s the issue. We’re having a problem, it’s pretty bad, and it’s getting worse. And if we don’t meet the obligations of AB 195, then the taxes go up, and it gets even worse.”

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