20191212 101949

California raises taxes on Cannabis Cultivation LegaL businesses face greater hurdLes than the iLLegaL market

I

n a move that bewilders the state’s cannabis industry, California’s Department of Tax and Fee Administration (CDTFA) adjusted the tax on cannabis plants upward by 4.1%, and increased the markup rate for wholesale cannabis from 60% to 80%. In simple terms, it means the price of legal cannabis is going up on Jan. 1, 2020. As growers mark up their prices and pass along the increases, manufacturers and dispensaries will mark up the retail price. “As our regulated and taxed industry struggles to compete with the unregulated and untaxed industry, a tax raise is the last thing we need,” said Kimberly Cargile, owner of Sacramento’s A Therapeutic Alternative dispensary.

“We are losing customers at the retail level and this move just ensured that in 30 days from now, we will lose even more.” Jacqueline McGowan Sacramento cannabis consultant Californians will pay more for legal cannabis products beginning on January 1st.

According to the CDTFA’s press release, the 4.1% increase is not necessarily a tax increase, but rather an adjustment for inflation (note: current 2019 inflation rate is only 1.76%). The change in markup percentages is based on “an analysis of statewide market data was used to determine the average markup rate between the wholesale cost and the retail selling price.” “We are losing customers at the retail level and this move just ensured that in 30 days from now, we will lose even more,” said Jacqueline McGowan, a Sacramento cannabis consultant. Dispensaries across the state have recently conducted staff layoffs, while others have put a hold on expansion plans. “Every business owner that I speak to right now feels utterly defeated and without immediate intervention, it might be time to abandon ship,” said McGowan.

licensed dispensaries. As a result, consumers are finding their way back into the illegal market they originally came out of. Assembly members Rob Bonta (D-Oakland) and Tom Lackey (R-Palmdale) argued that lower taxes would both increase revenue via greater sales, and simultaneously put a dent in the illegal market. But their bid to reduce the cultivation tax, AB 286, was defeated in the last legislative session. “Right now, it’s an uneven playing field that we can’t even out,” said co-author Lackey. “For every storefront that closes their door, it will inevitably trickle down the supply chain and we will see multiples of cultivators, manufacturers, and distributors go under as well,” said McGowan.

“Totally get it,” said Alex Traverso, Spokesperson for the Bureau of Cannabis Control, “but we’re leaving all comment on this issue to the CDTFA.” The $12 billion California cannabis market is dominated, 3-to-1, by an illegal market that pays no license fees, collects no taxes and offers dramatically lower prices than