It truly staggers the imagination. If cannabis companies in the U.S do not readily have access to banks, nor 280E deductions, then continuing to increase state and local taxes on cannabis and CBD products will only cripple the legal market and further embolden the black market.
However, California, justifies even more tax increases due to the state’s lower than expected tax return collections on cannabis products. Their expected returns were low because the taxes are now so high that the black market is, unfortunately, the most overwhelmingly dominant player in the state.
To bring you up to speed. Last week, the California Department of Tax and Fee Administration (CDTFA) announced cannabis mark-up and cultivation tax rate changes to be effective as of Jan. 1, 2020.
Their desire for more revenue is like a vampire’s endless thirst for blood. The mark-up rate will now go up again, from 60% to 80%, based on an analysis of statewide data that the CDTFA undertakes every six months. Essentially, this mark-up rate is the basis for the State’s justification for a 15% excise tax. The 15% excise tax to recreational sales, is in addition to a cultivation tax on growers. It is estimated that consumers in some CA counties could be paying as much as 45% in aggregate tax.
California is undermining the potential success of the cannabis industry driving business into bankruptcy and emboldening the black market. There are just too many regulations and excessive taxes. It is estimated that almost 70% – 80% of cannabis sales in California currently happen through the black market, which makes a big dent in the state’s tax revenue. In addition to which, close to 80% of the state’s municipalities have banned cannabis retailers. This allows black-market growers to fill the void where consumers have no other purchasing options.
The CA legal cannabis market simply cannot compete with the black market. It’s time for sensible legislation and responsible taxation, something that has been lacking for decades.
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