California Plans to Hike Tax on Legal Marijuana, Threatening New Market With Rapid Extinction
Revenues from the state’s first full year of recreational marijuana sales declined, thanks to taxes and regulations.
California plans on increasing business tax rates on legal marijuana in 2020, which will hurt struggling companies that have trouble growing profits in the state’s toxic regulatory environment.
Hefty marijuana taxes that can approach 50 percent in some communities have been blamed for pushing shoppers into California’s tax-free illegal market, which is thriving. Industry analysts estimate that $3 are spent in the illegal market for every $1 in the legal one.
The California Cannabis Industry Association said in a statement that its members are “stunned and outraged.”
The group said the higher taxes that will take effect Jan. 1 will make it even worse for a legal industry struggling under the weight of heavy regulation and fees, local bans on pot sales and growing and a booming underground marketplace.
The Golden State’s marijuana tax schemes are already threatening the new market with rapid extinction, despite the promises that the revenues from the legalized pot would create a veritable Utopia.
California has long expected to be the world’s crown jewel of cannabis sales. Although estimates vary, most of Wall Street expects California to generate $10 billion to $11 billion in annual sales by 2030. Yet, in the state’s first full year of recreational marijuana sales, California’s total pot revenue declined. In 2017, when California only sold medical marijuana, sales hit roughly $3 billion. Then, in 2018, with both recreational and medical cannabis available, statewide sales plunged $500 million to $2.5 billion. A big reason for this drop is that California has been taxing the daylights out of its consumers.
Here’s a snippet of some of the expenses currently being absorbed by California consumers as legal cannabis moves from seed-to-sale:
- State taxation.
- Local taxation, which could have a few added percentage points, depending on the city.
- The aforementioned 15% excise tax.
- The cultivation tax that’s entirely dependent on the stage of plant being taxed.
- Quality control testing.
Again, while estimates vary, this suggests that the typical Californian cannabis user could be facing a tax rate of between 45% and 80%, once these new increases go into effect on Jan. 1, 2020. That’s practically inviting black market producers to undercut legal-channel marijuana, and the 2018 sales figures show it.
There are other signs that the situation is dire. Hundreds of people working in California’s cannabis industry are now losing their jobs.
CannaCraft, Sonoma County’s largest homegrown cannabis manufacturer, laid off 16% of its workforce last week. Flow Kana, a major cannabis brand for organic sun-grown marijuana from Northern California’s Emerald Triangle, also laid off about 20% of its employees.
Other California cannabis juggernauts announced layoffs in October. WeedMaps CEO Chris Beals announced on Twitter last month that his company fired 25% of the cannabis retail advertiser’s employees.
Eaze, a San Francisco-based tech platform that helps dispensaries manage deliveries, let go of 20% of its workforce.
“Everything was going really well. Then all of a sudden we weren’t hitting our target — and everybody was retracting,” said Dennis Hunter, founder of Santa Rosa-based CannaCraft. “We had to make the responsible decision to cut our costs.”
Apparently, California can only successfully support 3 crops nowadays: Politicians, taxes, and regulations.
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it takes California to kill a business before it starts
So Corporate Cannabis is losing the California market to the regulatory state. Does that mean the cartels are wining? If so, I wonder if there was a bidding war between Corporate Cannabis and its legal sales model against the cartels for the hearts and minds of California’s legislators and their staffs.
It takes California to fail at selling weed.
I live in Canada where it was legalized last year and is sold through government stores. The taxes are so high, they’re losing money while people buy it on the black market.
There’s nothing private enterprise can’t do that the government can’t do worse.
I have somewhat libertarian views, but I voted against the proposition legalizing marijuana precisely for this reason.
A grower would be nuts to try and comply with all the legal regulations and prohibitive taxes. Much cheaper to grow marijuana illegally.
The State of California is competing against the Black Market. The State doesn’t get to set the sale price, the market does… which is a foreign concept to socialists.
The worst part for California is now they’ve done away with all the criminalization and possession laws that they used to use to control the practice. Now, if they want to “crack down” all they can do is pursue tax laws – but nobody ever respects or helps “revenooers”, not back in the moonshine days, not now.
So the cartels will get bigger and bigger.
Unexpectedly? or “unexpectedly?”
If I recall correctly, the marijuana producers also face two other choking hurdles. Since it is still Federally illegal, the producers can’t get loans from banks to expand/run their business or process their money through bank accounts for fear of having it just vanish when a Fed decides to grab the free money. Second, I’m not sure if California does this, but at least one state prevents the producer from charging labor as an expense. (so they can artificially inflate the supposed ‘profit’ and the taxes owed on it)
I want everybody in Texas to know that just because I was born in Kali doesn’t mean I’m a Democrat. let alone insane like the people leading the charge toward the cliff of fiscal insolvency. Although really Democrat does equal insane these days. As soon as I turned 18 I voted for Reagan and I’ve never looked back. I moved to Texas to man the ramparts of the Alamo.
These people are AOC-level stupid when it comes to economics, history, proficiency in the English language, really any subject you can think of.
You may have heard. Kali Dems have acted to “make” housing more affordable by introducing state-wide rent control. That’s how you create a housing shortage, which reduces supply, which makes housing less affordable. But try telling that to a leftist Dem like Gavin Gruesome. Cause? Effect? What’s that? Dems just have the idea that they can order people to do things and THEY’LL JUST DO IT!
Newsflash: the state of kali can’t order investors to build “affordable housing” and then lose money on their investment. They don’t get that. They can’t get that; it’s beyond their limited grasp of reality, if they have any grasp on reality at all.
So, one of the arguments for legalizing marijuana is that it would eliminate the illegal market. And, oh by the way, they’ll just tax the living s**t out of the legal sales.
Meanwhile the local stoner’s friendly neighborhood pot dealer, the guy the pot head has been buying his grass from for years, doesn’t pay taxes on is sales so neither does the buyer.
This is not how you eliminate black market sales in anything. It’s how you create black markets. Duh.
When Gavin Gruesome was Lieutenant Governor he came to Texas to find out why business owners/his tax base was fleeing the state. I didn’t bother to go since I knew how the lecture would go. Every time business owners explained why the relocated to Texas Gruesome kept saying, “No, that can’t be it.” The same thing happened when L.A. mayor Eric Garcetti invited employers with a lot of minimum wage workers to a meeting to discuss what the impact of raising the minimum wage to $15/hour would have on their businesses. Really, it came down to three choices. Relocate out of kali (because there is no point in relocating to a “saner” part of the state because this lunacy is apparently infectious and if it isn’t the state government will impose it on the parts of the state that would never vote for it), cut hours, or automate and fire workers. And Garcetti just sat there and kept saying, “I don’t believe you.”
He still won’t believe them even if they do exactly what they told them they’d do. Just like Gavin Gruesome didn’t believe former kali residents who relocated their businesses to Texas when they told him why they did it. If Gavin Gruesome didn’t believe business owners who have already done what business owners in L.A. told Garcetti what they would do, then these soulless ghouls won’t believe them when they fire their workers as the leftards raise labor costs.
California need to read the story of the ‘goose that laid the golden egg’
California politicians believe they can have roast goose, scrambled eggs, and get the gold too.
I like to tell my friends outside west Texas that my hometown is actually located in French Polynesia and I own a shave ice stand on the topless beach. My version is a joke, but California believes theirs. If you ever get to town give me a call and One Nipple Nancy and I will have you over for supper. Please don’t ask Nancy about her name. The archery accident still keeps her awake at night.
“California politicians believe they can have roast goose, scrambled eggs, and get the gold too.”
They and their friends can. The rest of us, not so much.
Leftists/Democrats/socialists actually believe that reality is something a person defines rather than something to be discovered. They really don’t get it. They think the solution is for the brilliant Dems to control the benighted masses of deplorables (who sometimes wear MAGA hats). The totalitarian government is the “logical” solution and the path to Utopia.
Generally agree, but the rent control law will be partly ameliorated as of January 1st of 2020, by a bunch of new State laws encouraging property owners to build Accessory Dwelling Units (ADUs). These are separate units on a lot that already has one “main” dwelling.
These actually became a State regulated Thing on January 1st of 2018, but the Cities and Counties were allowed to regulate their size and generally make it hard to actually build one.
And, a lot of the jurisdictions made it a condition of approval that they could not be rented out or that they could only be occupied by an owner or and owner’s relative.
State is taking a lot of those restrictions out of the local jurisdictions’ hands.
This will allow a lot more housing to be built, thus increasing the supply, but it will not solve the problem, at least in the Bay Area,since there is a lot more new office space being built than there will be new ADUs.
And, Gruesome signed the bills, probably because they were passed below the enviros’ and NIMBYs’radars.
Just curious?
Is there any amount of bad idea that will make you think, “Bad idea?”
Because about 15 or 20 years ago I figure out your heart IS NOT in the right place.
I realize as a former subject of the dictatorship of kali I will always be, in Texas, an object of suspicion.
So be it. I’m not looking for special favors. If I wanted special favors I would have stayed in kali and bribed the Dems for them.
Really there is no way that I can prove I belong here other than succeed under the same rules everybody else does.
A personal comment. What happened to kali wasn’t inevitable. I once fit in as a Reagan voter. Imagine how many decades it’s been since that’s been remotely true.
The demographic change that is taking place is not a natural change. Like Merkel in Germany, like Blair, like Obama, these people hate Germans, Britons, and Americans.
I think the best evidence I can offer I am not one of them is I spent 20 years in the Navy to stop them. Little did I know, while I was looking outside for mine and your enemies, they were already on the inside.
Get a pickup truck, put a Molon Labe sticker on the back window, talk a little slower and learn to love cabrito. Pretty soon you will be one of us. Oh and don’t tell strangers that you are a squid. Just say you were in the transportation arm of the Marine Corps.
Coward-Piven is California’s Bible.
Am I the only one who worries about the perverse incentive to the state govt that illegal MJ be as dangerous and as deadly as possible?
OTOH, illegal, non-taxed MJ sales are booming. Seems like plants don’t come with tax stamps, you can’t tell legal weed for any other kind. Some CA pols probably thought legal weed would be a tax bonanza, others figured it would be a black market bonanza and supported it because, not in spite of that. Lotsa theater in politics, and it’s Kabuki theater.
don’t forget: you can grow your own (up to 8 plants, IIRC) and, other than the electricity for the grow lights & hydroponics, you just have the one time purchase cost.
no taxes on that, and you *know* what the source is.
the idiots in charge here keep trying to perfect stupidity.
With a $200 light some seeds and a couple containers of dirt a guy can grow a lifetime supply.
If there is a bad decision to be made, california will make it !
Same thing probably in IL. The politicians are patting themselves on the back for expunging past convictions for possession but they passed a law that continues to prosecute, with the possibility of prison the same activities.
Also they seemed to have created 2 separate classes of citizens. Medical marijuana patients can legally grow while everybody else is subject to prosecution. Perhaps because it’s medicine?
We have a small private single engine plane that flies around Portland every evening for about 5 hrs. It does not show up on flightradar24, and the only other planes which do not appear are the ANG F15s. The two possibilities are electronic intercepts, or more plausibly, looking for IR heat signatures of non-registered grow houses. In the past they would just look for high electricity consumption or for electricity theft via a bypassed meter, but having 10KW of solar panels on the roof takes one off that radar scope. But it is hard to hide that kind of heat consumption/generation. There have been a number of cases of people caught transporting high grade MJ out of Oregon to other states. As has been pointed out, it is a hard crop to trace and tax, and is pretty much the new moonshine.
erc, whose responsibility is prove good will? I submit it is not mine.
Don’t kid your selves. With enough illegal aliens and consequent voter fraud they can turn Texas blue.
They hate us.
And they have sufficient power to be dangerous.
It’s a nice thought. We can secede. Have any of you really thought about it.
When people in Texas get annoyed with the Federales, there is always talk of secession, because they have the right to do it. However, support evaporates with the first step toward actually doing it. Texas sure as hell does not want to be Mexico, or defend itself on its own.
Geez’ Leslie…Couldn’t you find a photo of a guy planting actual marijuana plants? Those are garden vegetables which look to me like squash, cabbage, and lettuce. (just teasin’ you with a big grin on my face)
To speak in the vernacular, the Dems/Progs could screw up a wet dream!
Even dopehead surfers understand The Market better than California’s government lol.
Declining revenues!!??? Impossible!! Increase the tax to double.
California, the only Grubernment that can claim Sainthood while supporting the Mexican Cartels!
California, the only Grubernment that can claim Sainthood while supporting the Mexican Cartels!