On Wednesday, licensed marijuana businesses across California were massively disappointed that Governor Jerry Brown vetoed a bill that would have provided a significant tax break. Assembly Bill 1863 would make it possible for cannabis businesses to claim tax deductions under the Personal Income Tax Law.
The measure was approved by the California legislature earlier this year and would have taken effect for the 2018 tax year had Governor Brown signed it into law. Even though he vetoed the law, he wasn’t necessarily opposed to the idea, but found fiscally impossible. The California Senate Appropriations Committee estimated that the bill would eliminate $13 million in tax revenue per $1 billion in cannabis retail sales.
Governor Jerry Brown noted in his veto message that, “Given the cost to the General Fund, this proposal is best evaluated as part of the budget process.” It’s unlikely that this measure will be reevaluated during the budgeting process but cannabis reform advocates will continue to put forth legislation.
Unfortunately, this decision will be a considerable set back for all licensed cannabis businesses in the supply chain. Cultivators, manufacturers, distributors and retailers have all been hit hard by the exibordant tax rates for the regulated marketplace, not to mention the federal tax rates which can be upwards of 70% for some licensed marijuana businesses.
High cannabis taxes have caused quite the conundrum not just for those in the industry but regulators as well. The BCC has had to increase their enforcement and raid hundreds of unlicensed marijuana dispensaries, delivery services, and cultivation operations. Investigating and enforcing regulations is also a very expensive process so hopefully their can be changes made that are mutually beneficial for the BCC and licensed marijuana businesses.
The black and gray markets thrive when consumers refuse to pay sales tax that is almost double the price of the product. This will continue to be a problem for California until customers are satisfied that they’ll pay virtually the same amount at a licensed marijuana dispensary as they would at an unlicensed retailer.