California’s cannabis industry, already beleaguered by high operational costs and market uncertainty, could face another substantial hurdle: higher taxes. State lawmakers are considering raising cannabis business taxes significantly–an action which industry leaders warn could force many legal operators out of business.
Proposed Tax Increase
A proposed bill seeks to raise cannabis excise tax from 15% to 19% in an increase that industry advocates see as further burdensome to already overwhelmed industry players. Supporters of such an increase claim the extra revenue would help finance public programs like law enforcement efforts against illicit markets; while legal cannabis operators fear this increase could drive even more customers towards unregulated sellers and further compound an already problematic black market situation.
Industry Reactions
Business owners and cannabis trade associations have come out strongly against the proposal, noting that California already boasts one of the highest tax structures nationwide. Citing local taxes, state excise taxes, cultivation fees and licensing costs as burdensome expenses that often leave small businesses barely holding onto existence; increasing taxes further would only benefit unlicensed sellers offering cheaper prices without compliance costs for regulatory compliance compliance costs.
California legalized adult-use cannabis in 2016, yet illicit sales still comprise over 50% of sales; operators in regulated markets blame this imbalance due to overly burdensome taxations and regulatory requirements, creating price differences which divert consumers away from legal dispensaries.
What’s Next?
Should the tax increase pass, it could radically transform the industry by forcing smaller businesses to close and leaving only well-financed corporations surviving. With strong opposition coming from business owners and industry advocates to the proposal, lawmakers may need to examine ways in which to balance revenue generation against sustainability in California’s legal cannabis market.