A new proposal to lower California’s cannabis excise tax was introduced last week with the aim of luring legal weed users and reducing black market demand.
The new bill, authored by Assembly members Tom Lackey (R-Palmdale) and Rob Bonta (D-Oakland), comes three months after California officially launched its legal recreational cannabis market in January this year. The proposed legislation, which is also called Assembly Bill 3157, will specifically lower cannabis sales tax rate from the current 15% to 11%.
This move is expected to effectively reduce the disparity between the prices of weed from regulated cannabis retail businesses and that from black market sources. Closing this price gap will give the legal market the chance to take hold.
The bill will reduce the gap between the prices of cannabis products sold at regulated retail businesses and those from black market sources. Closing this price disparity will give the legal market a chance to take hold.
Under AB 3157, California’s current sales taxes on cannabis will be lowered for three years, or until June 2021, as the state implements Proposition 64 and transitions into the emerging regulated cannabis market. Aside from the cut in cannabis sales tax rate, all cultivation taxes will also be suspended during this transition period.
Proposition 64, or the Adult Use of Marijuana Act, is the 2016 ballot initiative to legalize cannabis for recreational use in the state. This initiative was passed with a 57% voter approval and became law in November 2016.
Bonta explained that AB 3157 lessens the tax burden on regulated cannabis businesses during the state’s transition period in order to keep customers within the licensed market and therefore make sure that this market thrives and survives. He contended that if the state does not get it right from the start, it is going to be hard to correct it in the future.
In a statement, Lackey said that they “need to give legal cannabis businesses some kind of temporary tax relief so that they stop being undercut by the illegal market.”
Both cannabis businesses and cannabis consumers have been calling for the tax cuts, insisting that the current cannabis sales tax rates have been driving consumers back to the black market due to its relatively cheaper prices.
According to Lackey, voters had approved Proposition 64 and it is time for the state to now carry out the voters’ will. He added that as someone who had spent 28 years in the field of law enforcement, he knows how sophisticated the cannabis black market in California has become.
Lackey pointed out that criminals don’t pay their business taxes, they do not check IDs and ensure that their customers are at least 21 years old, and they also do not obtain the necessary licenses, nor do they follow product safety guidelines.
California’s current cannabis taxes
Currently, California’s cannabis sales tax include a 15% state excise tax, as well as a state cultivation tax of $9.25 for every ounce of cannabis flower, $1.29 for every ounce of fresh cannabis plant, or $2.75 for every ounce of cannabis leaf. Aside from these, businesses also have to pay local cannabis taxes, which vary. There are also new costs associated with testing and distribution, and these costs could be rolled into a cannabis product’s counter price.
In the Los Angeles area, for instance, one can buy an eighth of an ounce of high-grade weed for around $35 in licensed retail shops. This quantity is enough to roll five to six joints.
Beau Whitney, senior economist at New Frontier Data, a data analytics firm that conducted an analysis of AB 3157, explained that the bill is taking a more market-based approach to curb the state’s illegal cannabis market.
Whitney said that lowering the cannabis excise tax and suspending the cultivation tax, the overall price that consumers pay for at the register gets lowered, too, and this will also lower the differential between legal and illegal market prices. Lessening this price gap is a critial component in making the legal cannabis market competitive against the black market and in making it more attractive to consumers.
New Frontier Data’s analysis shows that the bill would lower the prices of cannabis for consumers by 9% compared to what they are paying now.