Analysis: Lower taxes, less regulatory constraints would support better growth in California's licensed cannabis market
California's regulated cannabis industry has been struggling for years due to four major issues: Excessive taxation and regulation, underground competition that doesn't pay taxes or follow state rules, and federal prohibition that prevents interstate commerce.
At least one of those issues is finally fixed, at least for now. Governor Gavin Newsom recently signed a budget bill proposed by Democratic state lawmakers that temporarily reduces and binds various marijuana-specific taxes.
Those operating in the market are working with state regulators to reduce some of the heaviest burdens they have placed on the industry. Individual jurisdictions should allow more licensed retailers to compete in the underground market, but most have adopted the pro-illicit policy of banning legal sales. And the federal government? Well, good luck with that.
A three-year tax reduction to stabilize the market
Specifically, new California legislation eliminates cultivation tax on licensed growers and caps any further excise tax increases for three years, among other changes. NORML California Director Dale Gieringer note that “the budget bill is a useful start, but much more needs to be done to make legal cannabis more readily available to consumers who now rely on the unregulated market. »
Recent research has shown that this approach is essential for the long-term health of the industry. According to an economic analysis published this spring by The Reason Foundation, regulatory costs, high taxes, and municipal bans on cannabis retailers have significantly constrained the growth of the licensed marijuana market in California.
The analysis estimated that California imposes an effective tax rate of up to $92 per ounce (28 grams). This amount is higher than the tax burden imposed on retail cannabis transactions in other states.
Gieringer, who wrote the foreword to the study, recommended at the time that lawmakers impose “substantial tax cuts” to “reduce illicit market demand, while maintaining reasonable revenues.” for state-licensed retailers.
