California Senate approved a bill passed by the Assembly to put on hold a recent tax increase on marijuana products.
On Wednesday, the Senate Appropriations Committee approved the Bill from Assemblymember Matt Haney.
The measure was altered, so it must be sent back to the Assembly to receive approval before it can potentially reach the Governor’s desk.
If the bill is passed, it would put a five-year pause on the increase in taxes. The final vote on legislation must be given by the legislators before the session ends, which is September 12. And the governor has until October 12th to act upon any measure that reaches his desk.
Before the Senate vote, Sen. Christopher Cabaldon, (D), said that California’s marijuana legalization legislation had several objectives, such as “shutting down the illicit markets” and supporting “a variety of educational, environmental and social programs” using tax revenues.
He said, “That agreement is falling apart because the market has collapsed.” Today, only 40 percent of California’s cannabis market is controlled by legal companies. 60% of the cannabis market is illegal, with no environmental or consumer protections.
Cabaldon noted that California was losing to other states. Michigan, Oregon, and other states are collecting much higher tax revenues and doing much better at stopping illegal sales. So, now is not the time to increase the tax by 25%.
Jerry McNerney added, “We are committed to controlling and reducing the illegal markets.”
He explained that “raising taxes at this time will have an adverse effect.” It will drive people to the black market for cannabis which is not a good outcome.
A prior Senate committee stop had adopted an amendment that would have made the date of effect October instead of immediately. Last month, the tax increase officially went into effect.
Officials from the state announced that on July 1st, cannabis tax rates would go up to 19%. Advocates held out hopes that existing budget legislation could be changed to match Haney’s bill. It didn’t work out.
Haney’s bill was a response to a budget that passed earlier despite Governor. Gavin Newsom (D) supported the inclusion of a tax freezing in trailer legislation. Assembly Speaker Robert Rivas (D) also backed the delay, but Senate President Pro Tempore Mike McGuire (D) reportedly blocked it from the budget legislation.
Under Haney’s bill, which advanced through the Assembly in June, the delayed implementation wouldn’t take effect until October. It was argued that it should be included as part of the recently-enacted separate budget law because it would take effect at the time it is enacted.
Prior to its arrival at the Senate Appropriations Committee, last month the legislation had halted cannabis tax increases until June 30, 2020. A summary states that regulators will adjust the tax rates on a bi-annual basis to generate revenue equivalent to that collected by the cultivation tax prior to discontinuation.
According to the Chair, the Appropriations Committe moved “to shorten the period during which the 15% tax rate will be in force, and add reporting requirements.” The revised bill text has not been released yet, so it’s unclear what new timeframe will be.
Haney’s proposal would make it so the California Department of Tax and Fee Administration (CDTFA), working with the Department of Finance, would be required to “adjust the cannabis excise tax rate upon purchasers of cannabis or cannabis products” based on the “additional percentage of the gross receipts of any retail sale by a cannabis retailer that the department estimates will generate an amount of revenue equivalent to the amount that would have been collected in the previous fiscal year,” the text says.
According to information that is available, the department will need to “estimate” the amount of tax revenue that was collected during the prior fiscal year due to weight-based taxes.
According to the legislation, “the cannabis excise rate reduction has the specific purpose of providing immediate tax relief for the cannabis industry.” “The effectiveness of this goal can be measured by the Legislature based on the increase or decrease in cannabis excise revenue resulting as a result of the cannabis rate reduction permitted by this Act.”
It also mandates that CDTFA, on or before December 1, 2026 and each subsequent year the California “submit a report to the Legislature…detailing the amount of gain or loss in cannabis excise tax revenues resulting from the cannabis excise tax rate reduction allowed by this act.”
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The Senate Appropriations Committee last week also unanimously passed legislation to integrate hemp-derived cannabinoid products into the state’s medical and adult-use marijuana program, while banning synthetically derived cannabinoids. Panel adopted amendments “to delete the excise tax provision, to revise, change and create definitions for topical salves, as well as clarifying and changing requirements and prohibitions pertaining to industrial hemp and cannabinoids derived from hemp,” said the committee’s chair.
The panel additionally approved a measure to amend the state’s cannabis law to make it so cannabis microbusinesses with a license to ship products directly to patients, with amendments.
Meanwhile, California officials are inviting research proposals for a second round of grants under a program meant to better educate the public on the state’s marijuana law and help policymakers make informed decisions on the issue.
In June, the Governor’s Office of Business and Economic Development (GO-Biz) announced the recipients of over $52 million in community reinvestment grants to nonprofits and local health departments, also funded by marijuana tax revenue.
That marked the seventh round of cannabis-funded California Community Reinvestment Grants (CalCRG) under the state program.
California’s legalization of marijuana has led to the creation of a variety of grant programs that are aimed at combating the effects of prohibition of marijuana and trying to foster a well-regulated, strong industry.
California’s Supreme Court separately delivered a victory for the state’s marijuana program in June, rescinding a lower court ruling in a case that suggested federal prohibition could be used locally to undermine the cannabis market.
The state Supreme Court ruling also came just weeks after California officials unveiled a report on the current status and future of the state’s marijuana market—with independent analysts hired by regulators concluding that the federal prohibition on cannabis that prevents interstate commerce is meaningfully bolstering the illicit market.
The governor did sign a bill in 2022 that would have empowered him to enter into interstate cannabis commerce agreements with other legal states, but that power was incumbent upon federal guidance or an assessment from the state attorney general that sanctioned such activity.
Meanwhile, a California Senate committee recently declined to advance a bipartisan bill that would have created a psilocybin pilot program for military veterans and former first responders.
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