CA: Reduce State Cannabis Taxes To Level The Field For Licensed Growers

Photo Credit: Rich Pedroncelli

Now that adult-use cannabis is allowed by law in California, it’s clear that the promise of the free market that thrived before legalization has been badly damaged. It can be fixed. In fact, it must be.

I launched San Francisco Patient Resource Center nearly 10 years ago in order to serve the HIV-affected community. As a farmer and businessman who had thrived in the natural capitalism of the black market, I chose to make a statement as a contributing citizen in the emerging legal world of cannabis.

We all knew that Proposition 64, the measure that made cannabis legal in California, was malformed and full of problems. That’s why most cannabis professionals were against it. I don’t believe the state understood our industry, or that the cannabis community understood the barrier to acceptance that we would face with legalization.

Analyzing the burden of a 15 percent state excise tax, as well as multiple local taxes and regulations, a new study by the Arcview Group in Oakland released last week estimates that legal cannabis producers pay 77 percent more to conduct business than do those who have remained on the illegal black market.

And that’s without counting ongoing compliance and packaging costs, in addition to the cost of licensing, and paying other ancillary fees.

All of this begs what has become the bottom-line question in cannabis: Why would any grower or entrepreneur bring his or her black market business into the light? It’s getting harder to justify, let alone simply understand.

Troy Dayton of Arcview said of his new report, “It’s clear that every additional penny of price increase on legal cannabis products only serves to boost the attractiveness of purchasing from the illicit market, which has flourished in the state for decades.”

There is a glimmer of hope. There are some 40 bills newly introduced to the California Legislature to redress Prop. 64’s errors. On March 15, lawmakers proposed Assembly Bill 3157 to reduce state taxes on growing and selling cannabis in order to even the playing field for licensed growers and providers.

Co-authored by five legislators, including Assembly member Jim Wood, D-Healdsburg, from my district, as well as Assembly members Tom Lackey, R-Palmdale (Los Angeles County), and Rob Bonta (D-Alameda), AB3157 would reduce state tax on the growing and selling of cannabis for at least three years to give our emerging industry a chance at success.

The proposed legislation would reduce the excise tax to 11 percent from 15 percent, and additionally suspend the $148-per-pound cultivation tax that is inherently regressive for small, sun-grown and greenhouse cultivators who already receive a lower per-pound price than do indoor growers.

This is real money.

In Sonoma County, on Jan. 1, 2018, the price, including taxes, of an eighth of an ounce of flower was 42 percent higher than the previous day, Dec. 31, 2017. AB3157 would lower the price to 33 percent higher than the 2017 price. It’s not perfect, but it’s better.

“Criminals do not pay business taxes, ensure consumers are 21 and over, obtain licenses or follow product safety regulations,” Lackey, a former CHP officer, said last month. “We need to give legal businesses some temporary tax relief so they do not continue to be undercut by the black market.”

This is one law-abiding American farmer fairly pleading: Pass the bill. Let’s keep this business growing.