Gregory Yee, The Los Angeles Times (via TNS).
Tax cuts and other reforms are coming to the California cannabis industry as authorities seek to renew a system that companies, producers and others say has been hampered by over-regulation.
According to the California Cannabis Industry Association, a bill signed by Gov. Gavin Newsom last week cuts a crop tax on cannabis growers and shifts the collection of excise taxes from distributors to businesses. retailers.
“Although imperfect, we achieved some important victories, of which we should be proud,” the association said in a statement.
When Californians voted in 2016 to allow the sale of recreational marijuana, advocates envisioned a system of thousands of state-licensed stores and farms. Officials promised “social equity” to those most affected by the war on drugs.
In Los Angeles, a program was aimed at employers with a history of marijuana arrest, those on low incomes, and people living in areas disproportionately affected by marijuana arrests.
But legal market growth was hampered by complex and confusing regulations, high taxes and decisions by some communities to ban cannabis shops. Industry experts and lobbyists have been fighting for reforms ever since.
The new law, AB 195, is presented as a step in the right direction.
“The CCIA has been pushing for the elimination of the cultivation tax since it came into force four years ago,” the cannabis association’s statement says. “Reducing the crop tax indefinitely and changing the collection of the special distribution tax on retail sales are big gains for our industry! We also got tax breaks for at least three years, we went back successfully an automatic tax increase, which would have come into force in 2024, strengthened enforcement against unlicensed operators and provided additional relief for social equity operators. ”
Other reforms introduced by the new bill include limiting the excise tax rate to 15% for three fiscal years, although it may be increased after July 1, 2025; allow social equity licensees to retain 20% of the excise taxes they collect to reinvest in their businesses; making capital license holders eligible for a $ 10,000 tax credit; $ 40 million in tax credits, including $ 20 million for certain retail stores and microenterprises, and $ 20 million for cannabis capital operators; and add enforcement tools to combat the illicit cannabis market.
In its statement, the industry group said the work is far from over and that the survival of the regulated cannabis industry requires providing stable tax revenues to the state as well as advancing health and safety. public.
Robert Raich, an Oakland-based lawyer and California cannabis law expert, told The Times on Tuesday that incremental changes to the new bill are very important.
“The most visible improvement will be to support the legal and regulated cannabis market,” Raich said. “The problem we’ve had since 2018 when we entered this regulated and taxed paradigm in California is that regulations are too strict, too strict and taxes are so high that the vast majority of the market is still the underground market.”
Regulations have made prices so high that a person who buys in the unregulated “inherited market” is likely to pay 50% less than if they buy at an authorized dispensary, he said.
The system established before the approval of AB 195 also made it difficult for small-scale growers to make a living, Raich said.
“If you want to promote small businesses instead of large industrial-sized facilities, then eliminating this crop tax is an important element in achieving that goal,” he said.
While businesses and growers will see some crop tax relief, the excise tax is too high and will continue to push businesses and consumers into the underground market, Raich said.
“Frankly, the excise tax should also be eliminated or at least reduced a lot,” he said.
However, the industry is celebrating that victory, Raich said.
“It’s universally applauded in terms of it, even though we didn’t get everything we were looking for,” he said. “If you’re a cannabis user, there’s a big difference. You can buy cannabis safer than you’ve tried. You’re saving money.”
And those who do not consume cannabis should also be satisfied with the passage of the bill, Raich said.
“It is estimated that only 20% of the global market is the legal market, which means that approximately 80% of the market is the underground, inherited and unregulated market,” he said. “This is a very visible failure. If we want people to work legally instead of keeping them as criminals, we need to have a system that really works.”
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