Flawed Cannabis Tax Structure in California

July has truly been a learning experience for everyone in the newly licensed recreational cannabis industry here in California. The guidelines and regulations are stiff and taxes are high! So high in fact it has stunted commerce for a good majority smaller non-vertically integrated cultivators, manufacturers and distributors.
California law makers have taken a different approach to taxation than Sister States Washington and Oregon implementing a huge tax on both cultivators and retailers. The tax structure has put market prices totally out of whack, cutting the margins for cultivators even lower to the point many cannot afford to do business.
Let’s take a look at how cultivators are currently taxed in CA:
Cannabis Flowers $9.25 per dry-weight ounce
Cannabis Leaves $2.75 per dry-weight ounce
Please note there is no differentiation of grade of product. This means you would pay the same tax for 5 year old brick dirt weed as you would pay for Fresh Top Top indoor A-Buds. This makes absolutely no sense. This structure also renders it nearly impossible for commerce of outdoor low grade flower to be sold for concentrate processing as in some cases the tax will be higher in itself than the price of the pound of flower.
On every pound of flower there is a $148 cultivation tax and for every pound of trim there is a $44 cultivation tax imposed on the cultivators. There is also a huge tax imposed on retail making the margins for Distributers and Retailers small as well especially in light of 280E limiting tax deductions for businesses in the cannabis industry.
In the infantile stages of Washington States legal market back in 2015 a similar structure was imposed taxing farmer’s 25% as well as retail sales. It was quickly discovered that putting more tax pressure on the farms was not a viable business model. The tax on farmers was removed and adjusted on the retail side within several months. Since that adjustment the Washington Markets have flourished with regard to commerce. California should learn from more mature currently functioning legal markets such as Washington, Oregon and Colorado and how they tax on a functional level.
We can all only hope California law makers are studying the impacts of these regulations and how everyone is being affected. Now that Cannabis has been ushered into legality the government must understand cannabis businesses are just like any other business with huge overhead that pay state and federal employment taxes just like any other business but don’t enjoy the freedoms of normal tax deductions under 280E. California needs to support its cultivators!

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