California’s 2020 Budget will Consolidate Cannabis Regulatory Agencies

California’s Bureau of Cannabis Control has released the details of Governor Newsom’s budget proposal for the improvement and streamlining of the licensing process. The plan will simplify the process in order to aid in the oversight of commercial cannabis activity. The first part will include consolidating the three cannabis regulatory agencies: the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health. This will form the Department of Cannabis Control that should be established by July 2021. 

Department of Cannabis Control

The hope is that having a standalone department with an enforcement arm will centralize and align the three cannabis regulatory agencies that will lead to a successful legal market. To further improve the industry in California, governor Newsom proposed simplifying cannabis tax administration by changing the point of collection. What this means is that the excise tax will be moved from the final distributor to the first and for the retail tax to the retailer rather than the distributor. 

This benefits the California industry by eliminating CDTFA’s requirement to set wholesale tax rates on estimated mark-ups. Under further consideration by the Newsom Administration is the consideration of changes to the number of taxes to simplify the system. 

California Cannabis Taxes

The cannabis taxes in California remain high, and play a major role in perpetuating the black market. The new year brought with a new tax hike that took 1 oz. of dried cannabis flower from $9.25 to $9.65. One ounce of dried cannabis leaves went from $2.75 to $2.87 and fresh cannabis plant increased to $1.35, up from $1.29.

Difficulty with cannabis taxes has been a major concern in California. With illicit dispensaries still flourishing many entrepreneurs are questioning the worth of their cannabis investments. Once the priorities of the Cannabis Act have been met, the remaining funds will be allocated to youth education, prevention, early intervention and treatment, environmental protection, and public safety activities. 

Cannabis Tax Collection & Funds

Newsom’s budget proposal also makes way for changes by moving the responsibility for the cultivation excise tax from the distributor to the originator. Additionally, the excise tax will now be moved from the distributor to the retailer. By moving the responsibility of these taxes to dispensaries, it will make CDTFA’s requirement to estimate product mark-up and set wholesale tax rates redundant.  The new system will hopefully reduce the tax collection burden on California cannabis businesses and streamline the tax collection process.

An estimated $332.8 million will be available in 2020-2021. There will be no structural changes for the allocations from 2019-2020. A majority, 60% will go to education, prevention, and treatment of youth substance use disorders and school retention. Another 20% will go to clean-up, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation. An additional 20% will go to public-related activities.

Contributed by Richard Sanchez