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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