15 May 2022 |

Gov. Newsom’s Latest Proposal Is A Band-Aid for Legal Cannabis

By Kaitlin Domangue

Gov. Gavin Newsom unveiled a budget proposal at the end of last week, which includes plans to eliminate the state’s cannabis cultivation tax and adjust tax revenue allocations from cannabis sales. 

The goal is to combat the illicit market, which is estimated to be 80-90% of the entire cannabis market in California. Legal operations can’t compete. Yay, right? It’s everything California cannabis has been asking for. 

Not so fast. This is cannabis – and we don’t do straightforward and simple here. Apparently. Gov. Newsom’s plans would eliminate the cultivation tax, currently set at $161 per pound of flower.

This is great, but the plan is to raise the excise tax on cannabis retail purchases after three years to make up for the revenue lost from slashing the cultivation tax. It would go from 15% to 19%.

So taxes aren’t really being eliminated, and as Lindsay Robinson of the California Cannabis Association said, “it’s kicking the can down the road.”

If the state isn’t taking in enough cannabis funds to continue supporting the programs they do, to the tune of $670 million a year, the excise tax could be stepped up as soon as January 2024. It might not be the 19% mark just yet, though. 

The legal industry in California needs and deserves a tax break, to the fullest extent possible, and this isn’t it. Operators aren’t even sure what the legal California industry will look like in five years without help.

Politicians are all talk and no action when it comes to cannabis and ya’ wanna know how I know? For years, I’ve been writing headlines like this: “Gov. Newsom PROPOSES tax cuts” or “House Democrats FILED a bill”. 

I rarely get to write that a bill passed both chambers of the United States Congress, or that the proposed changes were approved and implemented. 

And even this go-round – I was so excited to learn that Gov. Newsom proposed tax cuts. California cannabis needs this. It was an extreme letdown to learn that it’s not a tax cut proposal, but a tax shuffle. We’re just moving the tax rates to another spot.

California has been calling for tax cuts

At the end of last year, California’s top industry movers and shakers sent a letter to Gov. Gavin Newsom, President pro-Tempore Toni Atkins, and Speaker of the Assembly Anthony Rendon. 

The letter called for an immediate reprieve for California’s cannabis industry by eliminating cultivation tax, granting a three-year holiday for excise taxes, and expanding retail access across California – as 68% of the state remains without regulations or consumer access. 

Among the 30 who signed the letter include The Director of the California branch of the National Organization for the Reform of Marijuana Laws (NORML) and the President of Precision Advocacy, a lobbying firm. 

The CEO of FlowerHire, the CEO of Plus Products, the co-founder of Raw Garden, the co-founder of Kiva Confections, and the co-founders of Flow Cannabis Co. are also part of the 30 signatures. 

“It is critical to recognize that an unwillingness to effectively legislate, implement, and oversee a functional regulated cannabis industry has brought us to our knees,” part of the letter reads. “The California cannabis system is a nation-wide mockery; a public policy lesson in what not to do. Despite decades of persecution by the government, we have been willing and adaptable partners in the struggle to regulate cannabis. We have asked tirelessly for change, with countless appeals to lawmakers that have gone unheard. We have collectively reached a point of intolerable tension, and we will no longer support a system that perpetuates a failed and regressive War on Drugs.”

This letter, of course, comes after several other attempts to bring balance to the legal cannabis industry in California. San Fransisco already suspended cannabis business taxes for all of 2022 at the end of last year, but the rest of the state is trailing behind.

In response to the state’s lack of action, several localities have issued tax relief to cannabis companies, including Humboldt, Sonoma, Lake, Cloverdale, San Jose, Oakland, San Diego, Long Beach, and Palm Springs. 

There have also been several protests, like the one in January of this year, protesting cultivation taxes for all growers and asking for a repeal of excise taxes for equity retailers in California. 

Many businesses in California just operate unlicensed to avoid paying the taxes associated with bringing cannabis to market. Nearly 3,000 retailers and delivery services in California operate without a permit as of February 2020.

What would Gov. Newsom’s plan look like in practice? 

It’s a tax shuffle. Sure, we’re removing the cultivation tax, but we’re adding additional tax to replace lost revenue. 

Are these tax cuts ever going to reach the consumer? And even if they do help operators, is it helping enough to make an impactful difference? 

We don’t want to sound nitpicky, but California operators have been insanely clear about their needs – and the latest proposal simply doesn’t meet them. 

On the other hand, there are serious consequences to reducing taxes, and that is harming those programs and local communities that greatly benefit from the tax revenue. 

Service providers for low-income and at-risk youths oppose any tax cuts because they rely on the revenue generated. $400 million in revenue from cannabis tax revenue will go to child care and prevention services for the fiscal year 2021-22. 

“Not only does cannabis tax revenue play a crucial role in funding child care, but it is also a primary funding source for services for the formerly incarcerated, youth prevention services, job training, and other critical support systems in communities of color that have been impacted by the war on drugs,” said Jim Keddy, Executive Director of Youth Forward

What I’m thinking 🧠

At the risk of sounding like a broken record – REPEAL OR AMEND 280E!!! 

I’m 2 seconds from booking an impromptu flight to the Grand Canyon, with a megaphone, to shout this as loud as I can into the wind – and just hope my sound waves land in a lawmaker’s ear. They can even take credit for the idea, which I’m sure they’d do anyway. 

Jokes aside – I’m of the strong belief that repealing or amending 280E is the single greatest thing we can do right now for American cannabis businesses. Cannabis businesses need money and amending this tax code will do that. 

Period. Plain and simple. 

Amending 280E and allowing them to 🗣️ CLAIM STANDARD BUSINESS EXPENSES 🗣️ immediately frees up a large pool of capital for plant-touching operations. There’s no tax shuffle. No loans are being taken out. 

Heck, this doesn’t even legalize cannabis at the federal level. It simply allows state-legal operations to work like any other business with standard deductions. For California and businesses across the U.S. The federal government gets less money, though, which tells us what we need to know.

Can y’all tell I’m passionate about this issue? Repeal 280E was even my Twitter cover photo at one point. Seeing cannabis businesses suffering and unable to get a tax break, while they still pay federal taxes, is a quick way to get my blood boiling. 

If you agree with me, tweet me why. If you don’t, tweet me why!