15% of Zero is Still Zero: Cali Lawmakers Reject Bill to Lower Cannabis Taxes

They say the only things certain in life are death and taxes. Well, we’d like to humbly add to that list “inept government”.

In California, Proposition 64, or the Adult Use of Marijuana Act (AUMA), has by almost all accounts been a dumpster fire of a failure, starting from the top and incinerating hopes and dreams and potential prosperity on its way down.

At the root of any economic puzzle are two very basic categories – supply and demand. In Cali, the governmental institutions tasked with overseeing the state’s new adult use recreational cannabis market have either ignorantly or willingly crippled both sides of that equation and now sit with their hands in the air wondering why it is deteriorating so quickly.

In theory, who wouldn’t want to walk into a clean, well-lit shop to get legal cannabis? Anyone who came up pre-legalization and spent untold hours sitting in strange parking lots ducking the cops while waiting for a dealer who was always running late could appreciate the convenience of a brick and mortar storefront or delivery service with posted hours of operation and reliable service.

In reality, the problem comes down to price.

Those who were deep in the scene during Prop 215 became used to 4g eighths, low prices on bulk, and loyalty with a local collective leading to love shown in the form of freebies and samples. Those truly in need could find compassionate sources to get them the herbal medication they needed either free or at a fraction of the cost.

All of that went away with Prop 64.

Now, pre-packaged 3.499g eighths await, grown by well-branded farms you’ve never heard of, and rarely containing the quality you’re seeking. That is bad enough, but it’s the sticker shock at the register that sent many FTPs (First Time Prop64 customers) scrambling back to the streets for prices they could actually afford.

It is crucial to point out here that, in most cases, the inflated costs of legal weed are not the result of farmers getting rich – quite the contrary in fact.

The pathetic part is, nobody gets rich. Everyone pays more, nobody gets paid.

I mean, sure, you can make a living in legal weed. But the rags to riches stories so common not that long ago are few and far between nowadays and will only become even more rare under the current regulatory system.

As stated at the jump of this piece, this problem starts at the top with a state government who saw cannabis as nothing more than a cash crop to be exploited for both political and capital gain. Obviously, Gavin Newsom isn’t going to grow weed, so the way the government makes its money on mota is the same way they always make their money – taxing the shit out of We the People.

It starts with a cultivation tax of $148 per pound of flowers and $44 per pound of leaves and trim. That’s like a full point on an average pound of bud, usually gobbled up by a broker or middle man and the state has an answer for that too. They mandated a stop on the supply chain called Distribution, preventing growers from moving their product directly to market. Instead, distribution companies now handle the packaging, testing, and logistics to get legal weed from cultivator to consumer. But distros can’t sell to average joe’s, so you’ve got retail licenses as well. One collective name for all of them would be State Tax Collectors. Each stop on the chain is collecting taxes and paying them upward until the state gets what they feel is their fair share on every bag of buds bought.

Cultivation taxes, local, and state excise taxes and more all add up to as much as a 40%+ tax burden just above the bottom line on cannabis consumers’ receipts when they complete their transaction at the new clean, well-lit, legal dispensary in town.

That $50 8th of no-name midzotics that was jarred up two months ago just turned into a $70 8th – have a nice day!

It’s no mystery to anyone with a brain why the legal market is struggling and the black market is thriving. Nobody likes to pay taxes, and lord knows we are taxed from all angles here in California, but taxes are an essential driver of our society and a necessary evil for any industry. The cannabis industry is just being bilked for far more than any other and the repercussions are clearly crippling it.

Dozens of pieces of pending legislation are making their way through the sausage-making process that is lawmaking at the state level. These hopeful bills look to make right the many wrongs in Prop 64 concerning a wide range of issues like social justice, banking reform, compassion programs, veterans’ rights, and more.

Unfortunately, one vitally important piece of legislation was struck down late last week that certainly would not have been the magic solution for the woes of Prop 64, but would have been a big step in the right direction.

Proposed by a cadre of Democratic congress members led by Assemblyman Rob Bonta, this bill would have temporarily lowered the 15% state excise tax on all commercial cannabis transactions down to 11% and would have also waived the two cultivation taxes for a period of 2.5 years in an attempt to ease prices down for consumers who had retreated back to the black market.

On Thursday of last week, however, the bill failed to clear the Assembly Appropriations Committee, an essential step on the way to a full vote on the Assembly Floor. Long story short, any tax relief for the embattled California cannabis industry will likely have to wait at least until 2020.

Bonta, caving to cannabis critics, even agreed to leave the excise tax at 15% if his opponents would at least consider the temporary waiver on the $148/$44 per pound cultivation tax, but they would not budge.

The state is on course to collect roughly $270 million in cannabis taxes this year. If they hit that mark, they’ll fall nearly $100 million short of their wholly fabricated goal. These starched suits see this gap and instead of addressing the root cause of it, they double down on their draconian taxes. And who entitled them to make a half a billion off of our backs with no dirt under their fingernails anyway? Cannabis operators cannot put their money in the bank where it is safe and sourced and able to collect interest like everyone else’s money. Cannabis operators cannot deduct basic operating expenses under 280e like everyone else. Yet the state can rake in hundreds of millions of these allegedly dirty dollars and launder it right through their own accounts and into the national economy? Talk about not seeing the forest for the trees, these out of touch lawmakers just don’t get it. 15% of zero is still zero! 11% of something is something!

It gives me no pleasure reporting on this shipwreck, but this is our history happening in real time.

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