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Why is the world’s largest cannabis market shooting itself in the foot?
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Taxes in California are among the highest in the United States, and that includes, of course, cannabis-related taxes that are so exorbitant that they’re bogging down what the country rightfully should be — making it the largest and potentially most prosperous cannabis market of the world.
According to a new study by the Reason Foundation, Good Farmers Great Neighbors and Precise Advocacy.
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RELATED: 73% of all marijuana bought and sold in California is made in the illicit market
Taxed at a flat rate of approximately $161 per pound, plus a 15% excise tax and local growing, manufacturing, processing, distribution and retail taxes. As a result, California raked in almost $1 billion in cannabis tax revenue for the first three quarters of 2021, yet the cannabis industry is drowning.
Cultivation tax must go
“High taxes are undermining the legal cannabis market in California,” said Geoffrey Lawrence, director of drug policy at the Reason Foundation. “California could double monthly cannabis tax revenue by 2024 by eliminating the cultivation tax. Without the cultivation tax, our data shows that lower cannabis prices would increase sales of legal products, increase state government general sales tax revenue, and more than offset losses from the abolished cultivation tax.”
The market has stunted
Due to exorbitant taxes, the legal cannabis market in California hasn’t come close to meeting its expectations in terms of size. In fact, the market is only a third the size expected based on its population of around 40 million and high adult cannabis use rates.
That said, nearly two-thirds of cannabis sales in California still occur in the illicit market, the study estimates.
Weed taxes compared to neighboring states
California’s state and local taxes on legal cannabis are as high as $90 per ounce, or $1,441 per pound. For comparison, cannabis taxes average $340 per pound in Oregon and $526 per pound in Colorado.
Because of these lower taxes and greater access to legal products, Oregon residents are spending 378% more per capita on legal cannabis. Colorado residents spend 335% more per capita on legal cannabis than Californians, the report shows.
RELATED: New York’s Illicit Cannabis Market Is Booming, But Do You Know Why?
“We are witnessing firsthand a serious price drop in the California supply chain, in part as a result of the illicit market, high taxes and fees, and a patchwork of inconsistent local taxes that are pushing legitimate operators to the edge of a financial cliff,” said Amy O’Gorman Jenkins , President of Precision Advocacy and Attorney for the California Cannabis Industry Association. “We must not allow the world’s largest cannabis market to collapse.”
Farmers face the greatest challenge and some are giving up.
“Many farmers are thinking about going fallow this year. Busy Bee Organics, one of Santa Barbara’s first sun-bred farmers, has already announced that it will not plant this year,” said Sam Rodriguez, policy director of Good Farmers Great Neighbors.
Photo by Lealnard Riengkaew/EyeEm/Getty Images
No farmers, no weeds: what to do?
“The immediate elimination of the cultivation tax would be a first step in addressing critical issues impacting the state’s legal cannabis market from seed to sale,” Rodriguez said.
Another shocking statistic: Oregon (population 4.2 million) has one legal cannabis dealer for every 6,145 people (some say the highest per capita figure in the world!). Colorado (population 5.8 million) has one legal retailer for every 13,838 people, while California has only one legal cannabis retailer for every 29,292 people, the study found.
This article originally appeared on Benzinga and has been republished with permission.
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