In a move that shocks everyone in the marijuana industry, California has announced to increase business tax rates. California has struggled to control the underground economy with marijuana. By increasing the marijuana tax, many customers could be turning to alternative options due to high expenses.
Every six months The California Department of Tax and Fee Administration is responsible for determining the mark-up rate of the marijuana industry. This is done by analyzing the market data from across the state and the retail price of cannabis products. Based on this year’s analysis, the CDTFA has determined the mark-up rate for next year to go from 60 percent to 80 percent. As a result, a 15 percent cannabis excise tax will be implemented as of Jan. 1, 2020.
Additionally, The CDTFA will also introduce a new cultivation tax based on today’s inflation. The Cannabis Tax Law is responsible for this additional tax, which will go into effect at the same time. There are three different categories for the cultivation tax, here is how it will change next year:
Flower per dry-weight ounce: 2019: $9.25 2020: $9.65
Leaves per dry-weight ounce: 2019: $2.75 2020: $2.87
Fresh cannabis plant per ounce: 2019: $1.29 2020: $1.35
“The purpose of the markup is to have the actual tax match the 15% gross receipts rate approved by voters,” said CDTFA spokesman Casey Wells. “After analyzing thousands of transactions in the state’s Track and Trace system, CDTFA analysts have determined that the required markup rate for the period beginning January 1, 2020, is 80 percent.”
Now, there are many to oppose this notion, for obvious reasons. First and foremost, many people believe this increase in tax will push customers away from legal dispensaries. According to the Oxford Treatment Center, the average cost of an ounce in California is around $257. According to the same study, the national average is around $326. Now that accounts for all states, even ones that haven’t legalized marijuana. In comparison to other states with similar regularities, such as Colorado and Washington, California has the highest cost of an ounce. Raising the tax will put these prices closer to medical marijuana prices, near the $300 range.
California has struggled with the underground market for a handful of reasons. This year alone the state has confiscated over $1.5 billion in illegal marijuana. One big reason in this is the sparsity of legal dispensaries throughout the state. According to the New York Times, around 80 percent of California doesn’t allow the sale of recreational marijuana. This leaves California stoners looking for other options. Finally, California is struggling to control the underground market. Delivery services, such as Weedmaps, allow unlicensed sellers to advertise on their platform, allowing for fast, cheap, and illegal marijuana available for anyone above the age of 18. Unfortunately, many customers have gone this route for their marijuana.
Nonetheless, California’s marijuana industry is under construction. State officials are scrambling to gain control of both the regulated and unregulated markets. Hopefully, this tax will help promote the legal marijuana market, while the unregulated market slowly dies out. Either way, California won’t see any changes until the beginning of next year.