California’s marijuana industry gets a break under new law suspending tax hike

Gov. Gavin Newsom on Monday signed a bill to roll back taxes on recreational weed in an effort to give some relief to an industry that has struggled to supersede its illicit counterpart since voters legalized marijuana almost 10 years ago.

The law will temporarily revert the cannabis excise tax to 15% until 2028, suspending an increase to 19% levied earlier this year. The law is meant to help dispensaries that proponents say are operating under slim margins due to being bogged down by years of overregulation.

“We’re rolling back this cannabis tax hike so the legal market can continue to grow, consumers can access safe products, and our local communities see the benefits,” Newsom said in a statement, and that reducing the tax will allow legal businesses to remain competitive and boost their long-term growth.

An excise tax is a levy imposed by the state before sales taxes are applied. It’s applied to the cannabis industry under a 2022 agreement between the state and marijuana companies. It replaced a different kind of fee that was supposed to raise revenue for social programs, such as child care assistance, in accordance with the 2016 ballot measure that legalized cannabis.

For years, the cannabis industry has lobbied against the tax, arguing that it hurts an industry overshadowed by a thriving illicit drug market.

“By stopping this misguided tax hike, the governor and Legislature chose smart policy that grows revenue by keeping the legal market viable instead of driving consumers back to dangerous, untested illicit products,” Amy O’Gorman, executive director of the California Cannabis Operators Association, said in a statement.

Since its legalization, the recreational weed industry has struggled to outpace the illegal market as farmers flooded the industry and prices began to drop. Taxable cannabis sales have slowly declined since their peak in the second quarter of 2021 of more than $1.5 billion to $1.2 billion four years later, according to data from the state Department of Tax and Fee Administration. Legal sales make up about 40% of all weed consumption, according to the state Department of Cannabis Control.

Several nonprofits that receive grants through the tax opposed the bill, arguing that it will threaten services for low-income children, substance abuse programs and environmental protections.

In the Emerald Triangle, where the heartland of the industry lies nestled in the northern corner of the state, conservation organizations said they were disappointed in the governor and that it was a step backwards for addressing environmental degradation caused by illegal growers in years past.

“All this bill does is reduce the resources we have to remedy the harms of the illegal market,” said Alicia Hamann, executive director of Friends of the Eel River in Humboldt County.

Many nonprofits supported spiking other fees in agreement with lawmakers and industry groups that the excise tax would be increased three years later, Hamann said.

“It feels a little bit like a stab in the back,” she said.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.