Analysis: New California Bill Seeking Cannabis Tax Breaks Opposed by Youth Groups Who Fear Losing Funding

SACREMENTO- While California Senator Mike McGuire introduced a tax relief bill on Tuesday aimed at helping the cannabis industry survive a potential market collapse, youth and social justice organizations across the state responded with a letter requesting that the taxes remain in place to ensure their own survival.

If state lawmakers “reduce, suspend, and/or repeal the tax rates granted by voters in Proposition 64, we will witness an immediate, negative impact on thousands of children living in poverty and children of color across our state,” according to a letter signed by 152 children’s advocacy groups.

California’s Proposition 64 legalized recreational cannabis for adults and established a tax structure for farmers and merchants.

Local signatories First Five Sonoma, First Five Marin, and Napa County Office of Education rely on $385.8 million in Prop. 64 money to support their programs that assist 21,486 low-income students statewide.

This budget allocates approximately $150 million in annual financing for youth preventive services to communities of color.

Cannabis businesses, on the other hand, have complained about high taxes and the lack of local communities that allow for legal retail sales that compete head-to-head with the illicit market, according to a letter delivered to state leaders by more than 400 stakeholders a few months ago. Their letter requests a complete repeal of the cultivation tax, a three-year exemption from the excise tax, and a strategy to expand retail.

When the California Department of Tax and Fee Administration stated in December that it will boost the taxes growers pay due to growing inflation, businesses rallied from cultivators and producers to wholesalers and retailers. This year, the state cultivation tax went up from $9.65 to $10.08 per dry weighted ounce.

This all despite the state’s budget showing a whopping $31 billion surplus. 

The result was a tax revolt, with the industry reeling from high taxes and a drop in wholesale prices caused by a glut of product flooding the market, which lowered the market’s value.

In comments to the North Bay Business Journal, Executive Director of the California Cannabis Industry Association, Lindsay Robinson, concurred, calling the financing that youth organizations get “very critical” to keep programs running.

“We understand the importance of this money.  “However, if the legitimate firms fail, money will run out,” she said.

The state is then back to square one, with a thriving criminal market benefiting from the collapse of the legal industry, she noted.

If the market is stabilized with a brief reprieve and retail outlets increase, Robinson argued, the potential to gain from the large number of operators paying into the pool helps distribute the wealth.

Only time will tell what the right solution will be, and until then the industry in California has a lot of teething problems that need to be urgently resolved, one way or another.