State Sen. Mike McGuire said Wednesday he plans to introduce legislation early next year to eliminate the state cultivation tax paid by cannabis growers, a favored target of the industry.
“We need to take a close look at the overall tax rate and whether it is impeding the overall growth of the cannabis market,” he said.
“The bottom line is this: Cultivation taxes are crushing small farmers throughout the North Coast,” McGuire said, adding:
“Basing it off the weight doesn’t account for when the market collapses. It’s simply not sustainable.”
To reduce the financial burden on growers, the Healdsburg Democrat, who serves as assistant majority leader in the Senate, said he plans to seek abolition of the cultivation tax in exchange for a higher excise tax, which is imposed on point-of-sale-transactions.
McGuire plans to ask the Legislature’s Legal Counsel to see what’s allowable under state statute. He cautioned the state’s hands may be tied in eliminating the amount of cultivation tax.
Industry stakeholders shared their appreciation for McGuire’s plans, but some were skeptical that moving the tax from one point of collection to another would help.
“Any permanent reduction of taxes would have to go before the voters,” McGuire said, citing the regulations passed in California’s Proposition 64, which in 2016 legalized adult, recreational cannabis use statewide. The state subsequently set up a licensee and tax program that imposes obligations at every level of the supply chain from cultivation to sales and excise taxes.
The cultivation tax sparked renewed ire from the industry when the state announced plans to raise the rate next year from $9.65 to $10.08 per dry weighted ounce.
In the third, last-reported quarter, the growers generated $42.4 million out of the $322.3 million in total tax revenue collected from the industry; $168.9 million was from excise tax; and $110.9 million from sales, the California Department of Tax and Fee Administration reported.
McGuire’s proposal comes amid projections and concerns among cannabis stakeholders of a looming market collapse, as wholesale prices plummet to rates that hover around what some pay in taxes. The situation is prompting some to fear small growers will go out of business in a $3.1 billion legal industry the majority of Californians support. About a third of that annually goes into state coffers.
“We’re looking for more comprehensive tax reform,” California Cannabis Industry Association Executive Director Lindsay Robinson said in an interview.
“We also need more access to retail across the state,” Robinson said, insisting “it’s within the state’s best interest” to maintain its legal licensees.
“This is not just one rallying cry. The industry is at its breaking point of a potential collapse.”
Those alarm bells have sounded from the halls of Sacramento to the chambers of local government in the North Bay.
“We appreciate Senator McGuire taking action, but the tax burden is still there. Ultimately, cultivation should not be taxed in California. Until we lower the tax liability, the illicit market will…
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