California Lawmakers Seek Tax Cuts for Sluggish Pot Industry

A group of Democratic state lawmakers and one Republican colleague on Monday proposed slashing taxes to jump-start California's sluggish legal marijuana marketplace.

Democratic Assemblyman Rob Bonta of Oakland, Democratic state Treasurer Fiona Ma and three other Assembly members said at a news conference that the state's year-old legal marijuana marketplace is struggling to keep up with California's entrenched black market not encumbered by state and local taxes and time-consuming and costly regulations.

Bonta said the state's legal marijuana industry is "not occurring as we hoped, expected and wanted."

The proposed bill would for the next three years eliminate the state's $148 per pound cultivation tax on farmers and reduce the state's 15 percent excise tax on retail sales to 11 percent. A similar bill failed to clear the Democratic-controlled Assembly last year.

On Jan. 1, 2018, California broadly legalized marijuana use for adults after overwhelming support for Proposition 64, which promised to fill state and local coffers while helping to eliminate the state's illegal operators. But far fewer licenses and tax revenues have been collected than expected and legal businesses point to the state and local taxes and red tape as the reasons.

California officials said the state collected $234 million in taxes between January and October last year, the latest figures California Department of Tax and Fee Administration has available. Gov. Gavin Newsom's proposed budget for the fiscal year that ends June 30 estimates $355 million in annual tax revenues, a $275 million reduction from previous estimates.

Legal marijuana businesses also pay local taxes not affected by the bill.

Palmdale Republican Assemblyman Tom Lackey, who signed on to the current bill, sponsored a similar measure last year that failed to pass out of the Assembly's appropriations committee last year. Democratic Assemblywoman Lorena Gonzalez Fletcher of San Diego, the chair of the committee, said at the time she and other opponents pointed to a Legislative Analyst's Office estimated last year the cuts would reduce annual funds to the state by up to $297 million for voting no.

Lackey and the other lawmakers supporting the current measure said they hoped a tax cut would increase legal sales and help legitimate operators compete with the black market. Some businesses pay as much as 40 percent in combined state and local taxes, Lackey said.

"Lowering state excise taxes will help the legal marijuana industry gain a better foothold over the black market in California," said Ellen Komp of the pro-marijuana group California NORML. Komp also called on lawmaker to simplify the regulatory process.