Lawmakers Seek Cannabis Tax Cut to Combat Black Market in AB 286

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Image Provided by Rob Bonta's Twitter Feed

On Monday, in response to a sluggish cannabis industry in California, Assemblyman Rob Bonta and other lawmakers introduced AB 286 which would provide tax cuts to the cannabis industry.

Under the Bill:

  • Eliminate $148 per pound cultivation tax.
  • Reduce states 15% excise tax on retail sales to 11 percent.
  • These cuts would sunset by 2022.

Here is the press release by Assemblymember Rob Bonta:

Sacramento – Assemblymember Rob Bonta (D-Oakland) introduced AB 286 which will fight the illicit black market of cannabis by encouraging consumers to purchase the product from licensed and regulated businesses. This bill would reduce the price disparity between legal cannabis businesses and black market sources.

AB 286 will reduce existing state taxes on licensed cannabis for three years as California’s emerging cannabis industry gets established.

“The black market continues to undercut businesses that are complying with state regulations and doing things the right way,” said Bonta. “AB 286 will temporarily reduce the tax burden on these licensed operators to keep customers at licensed businesses and help ensure the regulated market survives and thrives. This very strategy has been shown to actually increase overall tax revenue in other states.”

“Right now the illicit market is dominating California’s cannabis industry,” said Assemblymember Tom Lackey (R-Palmdale). “These are bad people who are making our communities unsafe.  We need to give the good guys a chance to succeed otherwise our one chance at creating a regulated industry will be compromised.”

An identical bill (AB 3157) was introduced in 2017 by Assemblymember Lackey. That bill passed two committees with strong support but was held in Assembly Appropriations.

We are helping legal Cannabis businesses with their transition into the marketplace, just like we would for any startup industry,” said Treasurer Fiona Ma, who is a sponsor AB 286.

“As the Chair of the Assembly Public Safety Committee, I am concerned about the prevalence of the illicit cannabis market,” said Assemblymember Reginald Jones-Sawyer (D-South Los Angeles). “The voters and the Legislature have spent time and careful consideration in drafting regulations that ensure the health and safety of Californians.  Law abiding businesses have spent time and resources to become compliant with cannabis regulations, yet are struggling to compete with the illegal market because they can offer a cheaper product to consumers. This measure is crucial to helping the legal cannabis market grow in California and rewarding businesses that play by rules.”

“As we continue to regulate the legal recreational and medical cannabis industry, continuing the work that was begun in 2015, it is vital that licensed businesses are not undercut by the black market,” said Assemblymember Ken Cooley (D-Rancho Cordova). “We need to be creative in helping to incentivize businesses to stay in the legal marketplace. Lowering the tax rate is one tool we can use while also leveraging better enforcement against bad actors so that consumers and patients have a safe and legal product.”

Currently legal cannabis sales include a state excise tax of 15%, a state cultivation tax of $9.25 per ounce of cannabis flower ($2.75 per ounce of cannabis leaf; $1.29 per ounce of fresh cannabis plant), traditional sales taxes (ranging from 7.25% to 9.25%), and local cannabis taxes which vary.  The Fitch credit rating agency estimates that the current cumulative tax rate in California is as high as 45%. Other states with legal adult-use like Washington and Oregon have successfully taken steps to reduce their tax rates and encourage the adoption of the legal market.  Washington saw an exponential growth in cannabis tax revenue after it simplified its tax structure and reduced its rates—increasing from $13.4 million in June of 2015 (final month of initial tax rate) to $33.1 million in April of 2017.

“By lowering the excise tax and postponing the cultivation tax it will lower the overall price for consumers at the register, which will also reduce the differential between illicit and legal prices. Reducing this gap is critical to making the legal market more competitive against the illicit market and more attractive for consumers.” said Beau Whitney, Senior Economist at New Frontier Data.

AB 286 will suspend the state’s cultivation tax which currently charges a flat tax of $148 per pound. It will also reduce the state’s excise tax from 15% to 11%. Both tax reductions are temporary and would sunset in June 2022 after California’s regulated market has matured and has been fully implemented. The primary goal of the measure is to reduce the size of the state’s black market for cannabis and take money out of the pockets of criminals.

Assemblymember Rob Bonta represents the 18th Assembly District, which includes the cities of Oakland, Alameda, and San Leandro and is the Assistant Majority Leader.


7 COMMENTS

  1. This is insane. We have just voted in CA extra taxes on Cannabis, and now the politicians take it away by reducing tax on Cannabis. The Sacramento swamp always decides against the will of the people. Like sanctuary state etc

    • I don’t know if I would call it insane. The fact of the matter is that if one were to go to a legal dispensary such as Harborside in Oakland they are going to end up paying a total tax rate of >36%.
      Yet if one were to get on Craigslist you’ll find what you need, and guess what? The black market doesn’t add tax.
      Trust me, if taxes were raised substantially on alcohol we’ll see people figuring that one out too.
      This whole thing was done without a lot of precedence so determining what the most efficient tax rate was not easily figured at the time that this law was enacted.
      Its an adjustment, one that will encourage more customers to visit those businesses that are answering to the Bureau of Marijuana Control as opposed to dealing with the 19 year old pot dealer operating out of his bedroom.

  2. Voodoo Economics …. The whole thing with legalized cannabis was moronic from the get go. The state thought they were going to have an avalanche of money available. Thought people who weren’t “pot heads” were going to become one because it is “legal”, and those who are “pot heads” were going to abandon their usual dealer and go somewhere to pay inflated prices for the same junk all at the same time of providing ID so they can be tracked in some data base with the information going to who knows what. Think of something else morons.

  3. For some reason, people assume that everyone will immediately bend over backwards to comply with laws. Some cities erred in belief that legal pot would be a major money maker for them so they shot for the stars with local sales tax on top of an already high state tax. Some experts warned that high taxes would be counter productive and cause people to stick with the black market.

    Surprise surprise they decided to overtax it in the belief folks would willingly comply with laws. Now they’re back tracking and bringing down the taxes & fees to make it closer to the same cost as any other legal item you can purchase off the shelf.

  4. Dear CA legislators, when your kids are still living with you at age 30 and they need a new video game, your place reeks of dope or worse your family is severely impacted by a DUI marijuana car crash who you gonna call? You invented this mess. Thanks for looking out for all of us, not.

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