An attempt to jump-start California’s accredited marijuana retailers failed to clear a key legislative committee on Thursday, likely dooming its prospects for the year since the country’s largest legal cannabis industry continues to flounder in the shadow of the illegal — and tax free — black sector.
Costs for legal marijuana goods are inflated in California by the 15% cannabis tax consumers need to pay at the register and a cultivation tax on growers of $148 per pound for flowers and $44 per pound for the leaves.
A group of state lawmakers, led by Democrat Assemblyman Rob Bonta, had hoped to temporarily reduce the sales tax to 11% and suspend the cultivation taxation for two and a half years to help retailers compete with prices on the black market.
A Bonta spokesman said he’d agreed to eliminate the sales tax portion of the bill in the hopes it would bring in enough votes to get it from committee and have an opportunity to pass. But the bill failed to clear the Assembly Appropriations Committee on Thursday, meaning it won’t progress to the Assembly Floor and is likely dead for the year.
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“I am really disappointed,” stated Tiffany Devitt, Chief Compliance Officer for Santa Rosa-based CannaCraft, a cannabis producer and distributor. “We are being crushed by the black market.”
It is possible lawmakers could reestablish it using legislative maneuvers later this year, but it is unclear if they want to do that. California’s bud tax collections are not at all what lawmakers had expected after voters agreed to legalize the drug in a state with nearly 40 million people.
State officials estimate that if bud tax collections continue in their current rate — which is hard to predict since the business is so new — that the state will collect $270 million annually. That’s $85 million less than initial estimates.
Just recently, Democratic Gov. Gavin Newsom’s administration lowered cannabis tax revenue estimates for the budget year that begins July 1 by $223 million.
“The taxes are so high that there is a big incentive to avoid them,” said Dale Gieringer, director of pro-marijuana group California NORML. “”The black economy is currently at least as big or larger as the authorized market.”
State taxes aren’t the sole barrier to California’s emerging marijuana market. Industry advocates say local taxation and requirements on licensing and laboratory testing add up to make a legal bud company more costly. Additionally, retailers often don’t have somewhere to put their money because most banks will not accept it because selling marijuana remains a federal crime.
Efforts to address the banking issue did survive the statute. The Senate Appropriations Committee innovative Senate Bill 51, which will make cannabis-limited charter banks and cannabis-limited charter credit unions. The law would enable individuals financial institutions to cash special-purpose checks.
“We can’t sit by while the security of legal business owners, their employees, and the general public are put at risk. SB 51 represents an initial step in getting cannabis cash off the street and integrating these authorized firms into our economy,” Sen. Bob Hertzberg, D-Van Nuys, stated in a news release.
Bonta’s bill was one of several proposals from the Legislature that stalled out Thursday after they didn’t make it out of committee.
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