TITLE
Recommendation to request the State Legislation Committee to review and consider supporting SB 1281 and AB 2792; and consider adding an item to the State Legislative Agenda generally advocating for lowering the state cannabis cultivation tax.
DISCUSSION
The Control, Regulate and Tax Adult Use of Marijuana Act (AUMA) established a structure to: regulate the production, sale, and taxation of marijuana products; prevent access by minors; protect public safety, public health, and the environment; and take non-medical marijuana production and sales out of the hands of the illegal market.
The tax provisions contained under this framework have proven to be significantly burdensome for legal cannabis operators. Under existing law, the AUMA imposes a weight-based cultivation tax on harvested cannabis that enters the commercial market and a separate 15% excise tax on purchases of cannabis or cannabis products sold in this state. Local taxes are imposed in addition to these state taxes.
Currently, the weight-based cultivation tax on harvested cannabis is $161 per pound. This is a flat tax and therefore not proportional to the sales price, meaning that the impact of this tax will vary depending on the market price per pound of cannabis. In cases where the price per pound of cannabis has dropped, this tax is a greater burden on legal cannabis operators, often leading businesses to cut jobs, cut operating costs, or close their doors altogether, accentuating unstable boom and bust cycles in the industry. This tax structure has also inadvertently strengthened the illicit market, as displaced workers and closed cannabis entities seek other, more low-cost avenues for business when prices are low, and only return to legal operations when sustained price growth is seen.
SB 1281 would discontinue the imposition of the cultivation tax, would reduce the excise tax to 5%, and would remove the mark-up, which is based on inflation and determined by the California Department o...
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