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California Assembly Proposes Cannabis Tax Reform

March 16, 2018

Today, bipartisan members of the California Assembly, Republican Tom Lackey and Democrat Rob Bonta, announced a bill that will cut cannabis taxes to encourage more marijuana businesses to transition to legal status and away from the black market. This cannabis tax reform bill will be a welcome cost reduction for cultivators and retailers around the state.

Assembly Bill (AB) 3157 will reduce California state taxes for three years in hopes that many of the cannabis retailers that are operating without a business license will apply to become part of the regulated marijuana industry.

Current Cannabis Tax Rates

The current cannabis tax rates have forced marijuana dispensaries across the state to significantly raise the prices of all products. The exorbitant price hikes have caused many customers to seek lower prices at unlicensed cannabis retailers. Unfortunately, these unlicensed dispensaries are not held accountable to state regulations on minimum purchase age, quality control, or paying taxes.

Assemblymember Tom Lackey stated “Voters have approved Proposition 64 and now it’s time for the state to carry out their will. As someone who spent 28 years in law enforcement, I know how sophisticated California’s black market for cannabis has become. Criminals do not pay business taxes, ensure consumers are 21 and over, obtain licenses or follow product safety regulations. We need to give legal businesses some temporary tax relief so they do not continue to be undercut by the black market.”

As it stands, every marijuana transaction includes the state excise tax of 15%, the state cultivation tax of $9.25 per oz of marijuana flower, normal sales taxes ranging anywhere from 7.25% to 9.25%, and local cannabis taxes depending on the location of the dispensary. These inflated tax rates forces many commercial cannabis business to add as much as 45% on top of the retail price. Implementing this new cannabis tax reform would alleviate these high percentages and attract more customers to licensed marijuana dispensaries.

Black Market Marijuana Dispensaries

Not only does the black market jeopardize the safety of customers, licensed marijuana dispensaries lose out on a large percentage of their clientele. Democrat Rob Bonta notes that,

“California cannabis businesses are making significant investments as they embrace the regulated marketplace while, at the same time, being undercut by unregulated competitors. AB 3157 reduces the tax burden on the licensed cannabis market during this transition period, keeping customers at licensed stores and helping ensure the regulated market survives and thrives.”

New California Cannabis Tax Reform

The proposed cannabis tax reform bill not only slices taxes at the dispensary point of sale but also postpones the cultivation tax. Allowing state compliant dispensaries to compete with black market businesses will result in more tax revenue and less criminal activity.

Incentivizing dispensaries to enter the legal marketplace with a simplified tax structure has already proven effective in Other legal states such as Washington and Oregon. The State of Washington has already seen exponential growth in marijuana tax revenue following cannabis tax reform.

If the bill is passed into law, legal marijuana dispensaries that utilize advanced marijuana software, such as IndicaOnline, can easily change the cannabis tax rates for medical and recreational customers. View our full tutorial on assigning cannabis tax tiers to the different patient types or schedule a demo for a quick walk through with one of our qualified representatives.