Has California “wasted” legal weed? Cannabis companies threaten to revolt unless Sacramento cuts taxes, expands dispensaries

A group of California cannabis business owners who say their industry is collapsing are threatening to withhold tax payments unless state lawmakers embark on significant reforms.

Executives from more than two dozen cannabis producers, retailers, testing companies and advocacy groups have signed an online petition this week, calling for deep tax cuts and looser retail restrictions, citing frustrations over rising taxes and competition from a thriving black market.

Addressed to Governor Gavin Newsom and the leaders of the state legislature, the petition comes after months of speculation over a cannabis tax revolt, as recent efforts by the state to streamline cultivation oversight clashed with widespread industry concern over a flood of legally cultivated cannabis. at lower prices.

Any protest or significant tax reduction could have major financial impacts in a state that has raised $ 976 million in cannabis taxes in the first three quarters of 2021 only.

“California’s cannabis system is a nationwide travesty,” the signatories wrote, “a public policy lesson in what not to do.”

By midday Saturday, the petition had gathered more than 460 signatures. Several big names in Bay Area cannabis, including business and dispensary owners like Harborside, Meadow, Kiva Confections and Bloom Farms, have been listed as authors. They did not respond to requests for comment on Saturday.

A Newsom spokesperson did not respond to questions emailed about the petition on Saturday. Representatives for Speaker of the Assembly Anthony Rendon and Speaker of the Senate pro tempore Toni Atkins also did not respond to the emails.

Among the reforms that cannabis leaders are demanding ahead of the state’s annual budget process: the elimination of the tax on cannabis cultivation in California, a three-year “holiday” from state excise taxes, and a new deadline for local governments to establish rules allowing cannabis retailers to operate or by default to a state system.

As the petition stops at concrete threats or details of how many people in the industry could withhold taxes, the signatories say California has “squandered” its opportunity to legalize cannabis, and that they “will not stay on (their) knees” if the state refuses to act. As it stands, cannabis tax revenues fund public programs for everything from drug abuse prevention and treatment to marijuana use research and job training.

“Without significant change, many, if not most, licensed cannabis companies will be faced with a desperate choice: pay exorbitant taxes in a system designed to fail or pay employees so they can feed their families,” reads -on in the petition. “None of us want to make that choice. “

Despite these dire warnings, the legal cannabis industry in California was a $ 4.4 billion business last year, up from $ 2.8 billion in sales in 2019, according to one. analysis by Marijuana Business Daily. The problem, the petitioners argue, is that high taxes and widespread retail bans still allow the black market to thrive.

At the same time, many players in the fast-paced industry are also worried about producing too much legal cannabis amid regulatory uncertainty, leading to lower prices. A recent survey of cannabis growers in Humboldt County revealed waning optimism about the outlook for the industry due to these concerns.

“Overwhelmingly, respondents identified collapsing market prices and overproduction as their biggest challenges, with over-taxation coming in second,” according to the Humboldt County Growers Alliance survey.

Next year, state taxes on cannabis cultivation are should increase slightly, at $ 10.08 per ounce of dried cannabis flower from the current rate of $ 9.65 – a requirement under state law to account for inflation, as the California noted Department of Tax and Fee Administration. The state also imposes a 15% excise tax and a 7.25% sales tax, and many local governments charge additional taxes, making California one of the highest-taxed cannabis markets in the country. .

The cumulative effect, the petition argues, is that legal cannabis products are “50% more expensive at retail” than buying on the black market. While precise numbers are hard to gauge in the murky world of illegal sales, the California cannabis black market was estimated by the United Cannabis Business Association in 2019 to be at least three times the size of the legal market.

In recent months, cities in the Bay Area have gotten a glimpse of the scale of the illegal market through a series of busts. Law enforcement raided 18 facilities in San Leandro, Oakland, Hayward and Castro Valley in late September, harvesting hundreds of thousands of factories, $ 10 million in cash and assets, and 12,000 pounds of processed goods. The Alameda County Sheriff’s Office called it the biggest raid ever in the area.

The turmoil over taxes and black market sales comes as the state revamps its approach to monitoring cannabis.

In October, a new centralized cannabis control department marked its first 100 days of operation. Executives touted such accomplishments as creating a $ 100 million local grant program to help businesses gain legal certification; assist on 118 warrants related to suspected illegal activities; and putting in place new efforts to consolidate redundant state regulations.

“We made significant progress early on as a new department,” Cannabis Control Department director Nicole Elliott said in a statement at the time. “But this is only the beginning.”

Lauren Hepler is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @LAHepler



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