Last week, Gov. Gavin Newsom of California unveiled a modified budget proposal whose approval would revise the state’s marijuana tax revenue allocations and eliminate the state’s cannabis cultivation tax. The governor’s announcement comes just months after officials in the state announced that California had allocated $100 million in funding for the development of local cannabis markets, which would involve getting marijuana businesses fully licensed.
Newsom’s plan will maintain the 15% excise tax rate on cannabis sales and shift the point of collection and remittance for excise tax to retail from distribution, effective Jan. 1, 2023. This updated budget will also take steps to combat the illicit drug market in an effort to make the legal industry more competitive. This is something that stakeholders have been advocating for, especially as businesses struggle to keep up with a decrease in demand and rising inflation.
During the budget’s unveiling, Newsom noted that he was especially focused on finding ways to diminish the influence of illicit sellers and growers on undercutting licensed, legal businesses. This proposal, if enacted, will increase monthly tax revenue from cannabis in the state by more than 120% by 2024. This is according to findings from an analysis conducted by the Reason Foundation. The analysis report also noted that putting an end to the cultivation tax would also lower costs for consumers which would in turn, lead to a rise in legal purchases.
For this proposal to be implemented, it will need to be approved by a two-thirds majority in the legislature.
In a statement, the policy director for Good Farmers Great Neighbors, Sam Rodriguez, commended the governor’s move. Good Farmers Great Neighbors is a marijuana farmers’ advocacy group. Rodriguez stated that farmers in California were pleased that Newsom was taking steps to address the illicit market, noting that they were looking forward to obtaining more tax relief, which would help stabilize the supply chain.
The updated budget proposal also includes revised estimates on tax revenue allocations for the 2022–2023 fiscal year. The state of California plans to allocate almost $140 million for remediation and environmental clean-up associated with illicit marijuana manufacturing; roughly $401 million for education, school retention and youth substance misuse treatment; and about $140 million for law enforcement.
This proposal also calls for the establishment of a marijuana retail access grant program for local jurisdictions, which will support local retail licensing efforts. The $20 million allocated for this program will be disbursed from the state’s general fund.
It remains to be seen how the implementation of those proposed tax changes will impact the bottom lines of cannabis sector actors in California such as American Cannabis Partners and the entire value chain.
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