The California Department of Tax and Fee Administration (CDFTA) in the U.S. released information about raising taxes on the legal cannabis industry. It is going to be another blow in the industry that is facing economic competition. CDFTA is responsible for determining the tax mark on cannabis every half a year. Local businesses started moving out of California because of high operating costs.
Plans are in place to increase the California cannabis tax by 80%. However, a group of legal cannabis businessmen, who preferred to remain anonymous for fear of reprisals, argued that this measure could be considered as a tax maneuver on the part of the government, which will only benefit the sales of illegal retailers.
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Changes to the California cannabis tax mean trouble for the legal market
The California cannabis tax hike is considered a hard blow to the established local market, which boasts the largest in the world.
It should be noted that legal sales increased significantly compared to 2018, as the revenues reached $2.5 billion, despite the fact that the business is in recession, due to the uncertainty in cannabis legalization worldwide.
According to specialists, the benefit to the black market is that it can offer significantly lower prices than legal companies, so it is considered that many consumers will opt for the illicit industry to buy cannabis if prices increase.
California cannabis tax hike may send consumers back to the black market
It should be noted that, over the past four years, there has been a significant trend in the increase in legal cannabis prices in the United States.
If the new taxes are not absorbed by the companies and instead are charged to consumers, entrepreneurs warn that illegal sales of cannabis will increase.
Entrepreneurs, therefore, allude that this measure hinders the ability of the legal cannabis industry to operate profitably since it is deliberately trying to crush the livelihoods of legal operators.
“The illegal market is competitive because legal cannabis is very expensive to produce under Proposition 64,” said Dale Gieringer, director of the organization “Cal NORML.”
Assemblyman, Rob Bonta, argued that the black market continues to undermine the authorized and regulated market because state-level cannabis tax revenues are much lower than expected, indicating that a significant number of illegal, untaxed cannabis companies are still operating.
The black market continues to grow in California
According to data published in the Los Angeles Times, the black market continues to prosper. The profits are expected to exceed $8.7 billion.
“The reason the black market still exists is that California cannabis taxes are too high. Raising taxes will only exacerbate the situation by continuing to keep black market store prices ridiculously lower than legal dispensaries carrying proven products,” said Jay Handal, co-owner of Erba Markets.
“I am afraid that this increase will only strengthen the illicit market since the regulated market is already expensive. We are in the process of moving our business out of California because it simply doesn’t make financial sense for us to operate here, no matter how much we want to. I hope the many California cannabis companies I support and admire will pay close attention to how this increase affects their operating expenses and make the necessary adjustments to stay in business,” said Leone Posod, CEO of Treat Yourself, a CBD skincare company.
In response, the CDFTA stated that among its responsibilities it has to analyze the rate of increase in cannabis taxes every six months based on an analysis of state-level market data to determine the average surcharge rate between the wholesale cost and retail selling price of cannabis and cannabis products.
Cannabis prices in California predicted to rise
Based on these estimates, the average market price is established, which is the gross income of the seller from the retail sale of cannabis or cannabis products. Therefore, the new tax rate is expected to require an increase of about 80% effective as of Jan. 1, 2020.
Thus, the cannabis flower tax per ounce will increase from $9.25 to $9.65, cannabis leaves tax per dry weight will increase from $2.75 to $2.97, and fresh cannabis plants tax per ounce will increase from $1.29 to $1.35.
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First published in NacionCannabis, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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