Just last week, a measure to reduce the local cannabis tax in Berkeley, California from 10 percent to 5 percent was approved by Berkeley City Council, making the recreational tax rate in city lower than anywhere else in the state.

The aim of this move is to retain local businesses and the tax cut is expected to force nearby cities to do the same. This news comes just two months since Mayor Jesse Arreguin snipped the green ribbon to celebrate the start of Berkeley’s legal recreational cannabis sales.

The business license tax cut for non-medical cannabis companies was proposed to give Berkeley a competitive edge in the regional cannabis market. Although the changes won’t be applied until the end of March, neighboring cities are feeling the pressure to follow suit.

Advocates pushed for the tax cut, believing Berkeley’s former 10 percent rate to be too high.

Cannabis consumers and merchants in the city will benefit immensely from the tax cut, which could also reduce General Fund tax receipts, according to the City of Berkeley. Formerly, state taxes in California were some of the nation’s highest, with taxes on recreational cannabis being 34.25 percent, inclusive of a 10 percent local tax.

The effect of the cannabis tax cut in California

Adult-use cannabis sales in California started on January 1, 2018. Since this time,  California’s economy has improved, jobs are being created on a colossal scale and the state has emerged as the world’s biggest regulated cannabis market.

Boasting the sixth largest economy in the world with a $2.6 trillion GDP, California seems to be destined for great things, if the “green rush” continues to spread.

According to global leader in financial information services Fitch Ratings, the cannabis tax cut in Berkeley is a result of legal sales being negatively affected due to previously high tax rates that reached almost 35 percent. Fierce price competition amidst numerous local dispensaries meant that many were forced to shut down.

Described as “the largest and most influential state in the cannabis industry” by cannabis investment and market research company The Arcview Group, California is a major industry game player. In fact, it is now the world’s largest cannabis market and is anticipated to bring in $4 billion by 2020.

Subject to state excises and sales taxes, cannabis in California is conditional to a cultivation tax of $9.25 per ounce and $2.75 per ounce on leaves/trimmings. Since high taxes are a turn-off for cannabis consumers, the cannabis tax cut in Berkeley may prevent consumers from turning to the black market in that city specifically.

The effectual tax on cannabis sales in California will range from 40-60 percent, once all cannabis are taxes calculated.