Cannabis Conundrums in California

Cannabis Conundrums in California:

Exploring the overregulation and taxation of cannabis in California

The cannabis industry is one of the fastest-growing industries since the industrial revolution of the early 17th Century. Legal cannabis markets are grossing millions, almost billions, every fiscal year. One of the flagship cannabis markets is undoubtedly California. However, the grass isn’t always greener on the other side (weed pun intended.) A few problems exist in Cali’s cannabis market that has proven extremely difficult for the market to remain successful.

Examining California’s Cannabis Market

One of the ‘oldest’ legal markets of cannabis belongs to California. The former is one of two locales that are immediately thought of when consumers discuss legal cannabis (the other being Colorado.) California began providing patients access to medical cannabis in 1996. It would take an additional 2 decades for recreational cannabis to become legal in California. The Golden State also has been involved in the decriminalization of cannabis in California since the early 1970s. It is estimated that an astonishing 60% of adult Californians partake in consuming cannabis daily. With figures such as these, it seems likely that the cannabis industry will be full of longevity.

Cannabis Taxation in California

With such a renowned cannabis market, it is safe to assume that cannabis taxation has been quite beneficial for California. Last year, the state received nearly $700 million in taxes from the sales of cannabis. These figures are a product of the absurdly high tax placed on legal sales. Retail cannabis is attached a 15% excise tax on top of the usual 7.25% sales tax. Additionally, cannabis cultivators are not safe from the strict cannabis taxation in California. The Golden State enforces a ‘cultivation tax’ of nearly $10 per ounce grown. This is not the end of cannabis taxation in California. There also exists a ‘local cannabis business tax.’ This means businesses are responsible for an additional tax that can range from 1% to 15%, depending on the location of the cannabis business.

The Problem: Cannabis Catch-22

As aforementioned, cannabis taxation is extremely strict in California. These taxes have made it extremely difficult for existing cannabis companies to thrive. Moreover, it has made it just as difficult for cannabis startups looking to emerge into the recreational and medical cannabis industry. Many believe it is completely ok to tax cannabis. However, the rates have become mind-boggling. How do states expect to collect tax revenue from cannabis businesses when the tax rate themselves impede on grossing the necessary revenue needed to pay those taxes? Additionally, how do states expect the cannabis market to expand with such an engulfing presence over the industry?

Untimely Variables in the Market

Unfortunately, the problem of cannabis taxation existed before 2020. With the emergence of the COVID-19 pandemic, the cannabis industry has seen numbers in limbo. Some businesses, such as cannabis delivery services have thrived through the pandemic. However, other cannabis businesses have not been so lucky. Combining a global pandemic with the improper (and soon to be inflated) taxation of a physical product is a clear recipe for disaster. If Californians had not deemed cannabis a ‘medical necessity’ amidst the COVID-19 pandemic, the current state of the cannabis market in California could appear entirely different.

The Current Status of Cannabis Businesses in California

As aforementioned, the cannabis tax has gotten ridiculous in California. Moreover, it is expected to increase with the next legislative season. Government officials are trying their damndest to increase the taxes associated with cannabis products in California. It is worth noting that most of the funds received from cannabis taxation are implemented in a slew of social programs. However, if the taxes become unbearable, the cannabis market will suffer to a state beyond recovery.

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