Will cutting taxes on cannabis growers help them survive falling wholesale prices?

After four exhausting years of intense effort, California leaders ended the crop tax and other changes, giving growers a small reprieve. Cannabis companies say the agenda is far from what it takes to save struggling farmers. That being said, could it just be a means to reallocate funds?

Extensive legal sales began in California in 2018. Still, the sector has been hampered by high taxes, which can be as high as 50% in some locations, costly regulations, and competitive pressures from an active criminal market that industry analysts say is at least twice the size of the statutory one.

On the 13th, California Governor Gavin Newsom mailed his adjusted budget for 2022-23, the most notable of which was the much-awaited tax cut. On June 29, the Senate passed Assembly Bill No. 195 by a vote of 34 to 0, and the California Assembly also voted 66 to 0 to pass the bill. The law went into effect right after Newsom signed it, giving the legal marijuana industry some well-deserved tax breaks, albeit temporary, that began July 1.

The California cultivation tax, which was more than $161 per pound, has been eliminated and funds have been reallocated: for three tax years, the cannabis excise rate remains at 15%; but after July 1, 2025 it may be levied. Equity licensees are allowed to keep 20% of their excise taxes and repatriate them to their businesses. In addition, they qualify for a $10,000 tax credit. It also includes $40 million in tax credits, of which $20 million is earmarked for tax breaks for small businesses and brick-and-mortar retailers, and an additional $20 million for cannabis equity operators. Effective tax year 2023, the measure allows qualifying companies to claim tax credits of up to $250,000 for certain expenses. In addition, more equipment will be made available to law enforcement agencies to combat the cannabis black market.

A long-term solution, not quite

Juva Life Founder and CEO Douh Chloupek faced many of these tax issues as a manufacturing license holder in California. Chloupex said the marijuana production tax cuts didn’t address several key issues. For example, monitor these excise rates over the next three years.

In a statement to High Times, Chloupek said it was slightly better than a three-card shuffle and a nice little patch on the surface (referring to the adjusted bill). He added that those in the know would be amazed and would say that this is a wonderful thing. The IRS Tax Code 280E is a systemic federal matter, and putting it in the hands of a state like California, which has some of the highest taxes on a product that has lost 80% of its value, is a fundamentally wrong move for our industry as a whole . However, at the end of the day, it’s more of a band-aid to stop the inevitable bleeding that only its elimination can fix.

The price per pound of marijuana has fallen precipitously in California and other legal states in recent years, and few growers have experienced what Johnny Casali of Huckleberry Farms called “an extinction catastrophe.” Cannabis used to be worth up to $1,500 or more per pound to certain growers, but that price has since fallen to just $300. Also, half their value is lost when the cultivation tax of over $161 per pound is eliminated. Part of the blame for the drop in the price of cannabis has been attributed to the onset of easy cannabis withdrawal.

According to Chloupek, “a significant part of the cultivation tax” was lost in the supply chain as it passed from wholesaler to wholesaler to wholesaler. “That’s why it was never paid for. A producer would therefore be worth $160 per pound more, which would help fill the gap in our inherently flawed system. Basically, it’s not going to benefit any of us farmers who are currently disappearing like flies.

Chloupek claims he was the first person to receive a marijuana manufacturing license in the state of California, marking the beginning of his 12-year career in the legal market. Juva Life, which received the highest rating in the application process, was granted a license to operate a business in Redwood City. The retail space is already under construction and will debut in Q3. Juva Life recently closed $11.8 million in funding focused on marijuana research to build longevity for their business or organization.

What companies say

Additionally, Chloupek stated that the issue is deeply flawed. “And they basically treat the sector like a doomed cash cow and are currently consolidating control in every major transition deal, from big corporations and Monsanto to a few of them who have monopolies on alcohol and cigarettes. And by intentionally or inadvertently compressing the industry at this point, you’re only hurting the people who’ve been developing it for the last 30 years and getting squeezed out of it — and not unless you’re a vertically integrated MSO with one With a $500 million market cap and, say, $100 million in the bank to weather the next two years of the storm, your odds of surviving those two to three years are pretty much non-existent.

Some people claim that the new bill doesn’t seem comprehensive enough in terms of social justice measures.

According to Jerred Kiloh of the United Cannabis Business Association, a trade organization based in Los Angeles, the proposal would not allow companies to reduce high consumer costs, which push customers into the black market, where no taxes are collected and prices are lower .

Kiloh warned that it’s even possible the strategy will increase prices for customers at checkout.

Kiloh continued, “All they’re doing is deferring some taxes that will never reach the customer.

bottom line

While eliminating the cultivation tax seems like a step in the right direction, it’s hard to say that it’s a solution for an industry that’s still largely flawed.

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