The news about the bothering drastic changes in the cannabis industry in California has been around since 2021. These “changes” have been affecting all the cannabis sectors in the state, including businesses, consumers, and more.
But what’s the truth about these dramatic changes and how serious can they affect the industry? Let’s find out here.
The Collapsing Cannabis Industry in California: How True?
As operational and regulatory expenses soar and cannabis advocates, local farmers, and company owners alike are struggling to stay afloat financially, they demanded in January 2022 that the state of California change its marijuana tax structure.
Citizens gathered in front of Sacramento’s State Capitol to voice their case and warn that the sector might collapse if actions aren’t done immediately. According to co-founder and executive director of Supernova Women, Amber Senter, the artisanal cannabis business in California is in crisis and on the verge of collapse.
Cultivation taxes should be abolished, as well as the excise tax imposed on social equity stores, according to Senter and others. The event was fueled by the efforts of business executives who also want to see a shift in the taxation of marijuana in California.
In a letter to Newsom dated December 20, 2021, marijuana businesses cautioned that the market was becoming increasingly unstable due to illegal dealers and cultivators, and that quick tax cuts and a rapid increase of retail locations were needed to stabilize it.
In response to years of complaints that the heavily taxed cannabis industry is unable to compete with the widespread illegal economy, which offers far lower consumer prices and has double or triple the sales of the legal market, over two dozen cannabis executives and legalization advocates have signed the letter.
Cannabis legalization in California “was not passed solely to collect tax money, but to terminate the illegal market, safeguard public health and safety, and build an accountable legal sector,” the CEOs said in a letter to the governor.
According to company owners and tax experts, the state’s tax structure has been unfair to small enterprises from the outset. Marijuana is taxed at a fixed tax rate of $161 per pound, in addition to the 15% excise tax, as well as municipal cultivation, manufacture, distribution, and retail taxes that will take effect in January 2022.
As lieutenant governor, Newsom was a strong supporter of Proposition 64 and hinted that assistance may be on the way. As part of his 2022-23 budget proposal, he stated his support for marijuana tax reform and stated that he will engage with the Legislature to change the policy. He says he wants to regulate the economy by looking at tax policy.
A Democrat from the eastern San Francisco Bay region, Mia Bonta, said that altering the cannabis legislation is about guaranteeing social justice, fairness, and representation in a business controlled by white males but that has hurt mostly Black and Latino people for decades.
In the days running up to Thanksgiving, many cannabis companies in Bonta’s area were burglarized, losing an estimated $5 million. James Henry SF co-founder Henry Alston stated his shops were robbed at gunpoint five times during the string of crimes in Oakland, California.
With all these claims, you might say that California’s cannabis industry might really collapse. But when we look back at the status of cannabis policy in the state, the record shows that in February 2022, California’s legal retail cannabis ecosystem had 1,485 locations. Another problem is that in 2015, the state did not license retail cannabis shops, therefore there are no precise statistics on the number of retail cannabis outlets in 2015.
Moreover, opposing the claims of many, the legal marijuana economy in California is booming. It’s been a bumpy ride since Proposition 64 went into effect in 2018, but the legal market has seen a 249 percent spike in dollar sales.
Most analysts believe that the illegal market is expanding, despite the fact that its magnitude cannot be quantified. Overproduction for export, on the other hand, is substantially to blame for this expansion.
Regulating or lowering taxes will not be enough to stop the rise of the illegal cannabis industry since it will always have lower overhead and less government supervision. The most likely conclusion is that the legal market will not be regulated to safeguard public health.
Additionally, more than 1,485 licensed cannabis stores have opened their doors to citizens of Colorado in the past year, with a ratio of one licensed retailer for every 26,422 residents.
The New Approach to Cannabis Industry in California
Along with people’s claims, the recent trial in Long Beach, California, offers a better path ahead. When the city of Los Angeles County cut its supply-chain tax for 2019, and when the city council recommended a tax hike in 2020, the city instead lengthened the operating hours for marijuana shops.
Thus, raising their sales and generating more revenue for the city, as well. Adam Hijazi, a pioneering board member of the Long Beach Collective Association, an organization that promotes safe, legal cannabis usage in the city, says that such actions have resulted in tax revenue exceeding estimates and more than doubling the number of cannabis-related employment from 2019 to 2021.
Hijazi attributes the increase in cannabis tax income from $4 million in 2019 to $8 million in 2020 and $9.3 million in 2021 to the drop in tax rates.
The cannabis industry in California is currently facing issues today, but that will not change how fast and thriving the sector is in the state. However, there are possible changes that might happen in the future. So, if you’re a cannabis business owner, consumer, or someone who plans to start up a marijuana business in the state, it would be best to always be updated.
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