California’s chief taxing agency wants to squeeze more tax dollars from the legal cannabis industry – a move that’s being described as a serious blow to an industry that’s facing depressed market conditions.
The California Department of Tax and Free Administration (CDTFA) has announced the markup rate for the marijuana excise tax will increase from 60% to 80%, effective January 1, 2020. The rate hike pertains to the 15% cannabis excise tax on retail sales. This means taxes on an ounce of flower will increase by 4.3% (from $9.25 to $9.65), for example, while taxes on an ounce of fresh marijuana plant material will go up by 4.6%.
“An analysis of statewide market data was used to determine the average mark-up rate between the wholesale cost and the retail selling price of cannabis and cannabis products,” the CDTFA wrote.
Cannabis growers and sellers in California have been complaining bitterly about stiff competition from a thriving illicit market where marijuana can be purchased at much lower prices since growers and sellers don’t pay taxes or abide by the costly regulations that the legal cannabis industry must. The California Cannabis Industry Association, said in a statement that the move has left its members “stunned and outraged.” It argued that the CDTFA action will only serve to widen the price gap between legal and illegal marijuana sales, and “will further drive consumers to the illicit market at a time when illicit products are demonstrably putting people’s lives at risk.”
Some lawmakers in the state agree. State Assemblyman Tom Lackey, a Republican who sponsored unsuccessful bills in 2018 and 2019 that would temporarily lower marijuana taxes in the state, has pressed the CDTFA to justify the tax increase. “Legal cannabis businesses are in critical need of fewer taxes, not more,” he wrote in a letter to CDTFA. “The past two years, members of the legislature focused intensely on protecting the vulnerable legal market. This rise in the wholesale mark-up rate imposes additional burdens on the legal market, thus strengthening the illicit market.”
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