Cannabis tax relief plans in the pipeline for California’s legal market

California has been harvesting the rewards of its legal cannabis industry since the passing of Proposition 64 in November 2016.

However, despite the fact that California has shifted $13.5 billion of adult-use cannabis since launching sales in 2018, lawmakers have been moving at a snail’s pace in regards to dealing with the issue of costly cannabis taxes.

Fortunately, as we welcome the third month of 2022, local governments across California are putting a great deal of effort into providing cannabis businesses with tax relief.

As of January 1, cannabis in California is taxed at a flat fee of approximately $161 per pound, in addition to a 15 percent excise tax, and local cultivation, distribution, manufacturing and processing taxes.

The state has been constantly bombarded by requests from farmers and business owners who want to see tax rollbacks. However, tax cuts could hurt the economy. After all, during the first three quarters of last year, the state earned almost $1 billion in cannabis tax revenue.

Nonetheless, industry lobbyists say that hefty cannabis taxation in California is fueling the black market and starving companies of the ability to stand out among competitors with more capital.

Gov. Gavin Newsom vowed to deal with cannabis tax reform issues at the start of 2021

Back in January of last year, Governor Gavin Newsom signaled his desires to tackle cannabis tax reform issues in California. However, lawmakers have yet to finalize anything.

On the plus side, Assembly and Senate members are making headway, with four cannabis taxation-focused bills having been filed at the state level over the last few weeks. 

They are as follows:

  • Assembly Bill 2792 – The most comprehensive of them all, this bill would eradicate the cultivation tax and shrink the excise tax to five percent.
  • Assembly Bill 2506 – AB 2506 seeks to amend Sections 34011 and 34012 of the Revenue and Taxation Code by suspending the imposition of the cultivation tax from July 1, 2023, to July 1, 2028,
  • Senate Bill 1281 – This measure urges the Legislature to assist equity licensees in obtaining a personal income or corporate tax credit equivalent to the usual business expenses that are normally written off on their federal taxes.
  • Senate Bill 1293 – The legal language contained in this bill is very similar to that of SB 1281.

Push for cannabis tax relief in California started a couple of years back 

The subject of cannabis tax rollbacks in California is being pondered over amid rebounding wholesale cannabis prices, as well as claims from lawmakers, industry experts and operators that the state has approached the subject in a slothful manner.

Over the last few years, numerous localities have been heavily involved in attempts to relieve the cannabis tax burden that has plagued the industry since its inception. Examples of those localities include Humboldt and Sonoma counties, and the cities of Desert Hot Springs and San Diego.

“This is really a statewide issue,” said the executive director of the Humboldt County Growers Association, Natalynne DeLapp.

Looking to the future, state lawmakers must decide on whether or not they want to progress with any of the aforementioned bills. Industry insiders believe that changes to the existing cannabis taxation rules in California are unlikely to transpire until the year 2023; at the very earliest.