Cannabis businesses in California are relieved to learn that the ~25 per cent tax increase on marijuana that came into force in July has been abolished.
In a news release on Sept. 22, state Governor Gavin Newsom revealed that he has signed legislation to bring the taxation rate on cannabis back down from 19 per cent to 15 per cent. It will come into force on Oct. 1st and stay in effect until 2028.
A desire to keep consumers from turning to the illicit market helped inspire the decision.
“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” Newsom stated.
The news about Newsom’s decision to curb the tax boost after intensive lobbying efforts was well received by state stakeholders. It comes after the California Senate voted overwhelmingly in favour of eliminating the increased levy.
“We are encouraged by Governor Newsom’s signing of AB 564 [legislation] today,” said Glass House Brands Inc (OTCMKTS: GLASF) (FRA: 4KF0) CEO Kyle Kazan. “The legal and regulated market will always be much better for society and onerous taxes only serve to challenge compliant operators and consumers at a time when the priority should be cracking down on the illicit channel.”
Additionally, the California Cannabis Operators Association is quite happy about the government’s decision.
“By stopping this misguided tax hike, the Legislature recognized that smart policy grows revenue by keeping the legal market viable,” the organization said. “The passage of AB 564 proves that sound policy wins when state lawmakers listen to data over rhetoric.”
This enthusiasm is also shared by the Humboldt County Growers Alliance, the United Food and Commercial Workers Western States Council labour union and local drug policy reform advocacy organization, California NORML.
Despite having the world’s largest legal cannabis market, California’s sector has been plagued by challenges in recent years. Many operators in the state sector, particularly the smaller ones, have been struggling to turn a profit due to high taxation and steep competition.
Read more: Cresco Labs becomes latest operator to bail on California weed sector
State operators owe about US$1.3B in unpaid taxes
Despite the positive news for local businesses, California taxes are still among the highest in the country. The state has collected over US$7.3 billion in tax revenue from the sector since 2018. Local operators continue to end up paying approximately 40 per cent in levies when all is said and done.
In addition to the toll on small companies, many sizeable public operators have also given up.
Cresco Labs Inc (CNSX: CL) (OTCMKTS: CRLBF) (FRA: 6CQ) was one of the latest to call it quits in California due to economically unfeasible market conditions. Furthermore, Curaleaf Holdings Inc (TSE: CURA) (OTCMKTS: CURLF) previously chose to exit and Trulieve Cannabis Corp (CNSX: TRUL) (OTCMKTS: TCNNF) (FRA: T0A) has scaled back its state operations significantly.
Agreeing to relinquish the 25 per cent tax hike that’s been in place for over 2.5 months has brought hope to those who are continuing to try and make a living in California’s cutthroat industry.
Read more: Bill Maher and Woody Harrelson’s California dispensary gets ransacked
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