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Lowering California’s Cannabis Cultivation Tax Would Boost Revenue

Ed Knight

By Ed Knight

May 9, 2022

Getting rid of the cannabis cultivation tax could be a shot in the arm for California’s legal industry, according to a new study out this week.

The findings come via the Reason Foundation, a libertarian think tank, which asserts that the Golden State “could increase legal cannabis sales and bring in 123% more in total monthly cannabis-related tax revenue by 2024 by eliminating its cultivation tax.” 

“High taxes are undermining California’s legal cannabis market,” Reason Foundation drug policy director Geoffrey Lawrence said in a statement accompanying the study, which was also sponsored by Good Farmers Great Neighbors and Precision Advocacy. “California could double monthly cannabis tax revenues by 2024 by eliminating the cultivation tax. Without the cultivation tax, our data show lower cannabis prices would increase sales of legal products, increasing the state government’s general sales tax revenue and more than replacing losses from the eliminated cultivation tax.”

The study comes amid mounting evidence that California’s state-regulated recreational weed market has experienced sluggish growth since 2016, when voters there approved a measure legalizing adult-use sales. In the nearly six years that have transpired since, the state’s illicit market still reigns supreme.

A report last year in Politico noted that “California’s strict regulations have led most industry operators to close shop, flee the state or sell in the state’s illegal market that approaches $8 billion annually, twice the volume of legal sales.” 

According to Politico, licensed cannabis retailers in California “offering legal goods are sparsely scattered across the state – there are roughly 2 per 100,000 people, one of the lowest rates in the nation among states that support legal recreational sales.”

“By comparison, Oregon has 17.9 retail shops for every 100,000 residents. Colorado boasts a similar ratio, and Washington state’s rate is more than triple California’s,” Politico reported.

The study from the Reason Foundation, which was published on Wednesday, offers a prescription for that problem.

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Fixing California’s Cultivation Tax Problem

According to the study, “California’s state and local taxes on legal cannabis are as high as $90 per ounce, or $1,441 per pound,” compared with an average cannabis tax of “$340 per pound in Oregon and $526 a pound in Colorado.” 

“Due to lower taxes and greater access to legal products, residents in Oregon spend 378% more per capita on legal cannabis and residents of Colorado spend 335% more per capita on legal cannabis than Californians spend,” the study said.

The study “recommends reducing retail excise taxes and encourages policies that could incentivize California’s local governments to stop banning the sale of legal cannabis products,” noting that “Oregon has one legal cannabis retailer for every 6,145 residents and Colorado has one legal retailer for every 13,838 residents while California has just one legal cannabis retailer for every 29,292 residents.”

“California’s cannabis farmers are experiencing the biggest challenges of their time. Many farmers are considering going fallow this year. Busy Bee Organics, one of the first woman-owned, sun-grown farmers in Santa Barbara, has already declared she’s not planting this year,” said Sam Rodriguez, policy director of Good Farmers Great Neighbors, described as “an alliance of mostly outdoor, sun-grown cannabis farmers and auxiliary businesses throughout the central coast.

Rodriguez explained how the cultivation tax in California is harmful to the survival of the state’s cannabis industry, as it has caused uncertainty to the current and future economy of cannabis farms. Rodriguez continued, “The immediate elimination of the cultivation tax would be a first step in addressing critical issues impacting the state’s legal cannabis market from seed to sale.”

Amy O’Gorman Jenkins, president of Precision Advocacy, billed as “a lobbying firm with over two decades of experience in state legislative and regulatory development, and public affairs at the state and local levels,” said that the study “provides a roadmap of tax policy solutions for the governor and state legislative leaders to consider immediately.”

“We are experiencing first-hand a serious price compression in the California supply-chain in part as a result of the illegal market, high taxes and fees and a patchwork of inconsistent local taxes driving legal operators to the brink of a financial cliff,” O’Gorman said. “We cannot allow the largest cannabis market in the world to fail.”

Ed Knight

About The Author

Ed Knight

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