Will the tax exemption of cannabis encourage people to move from the illegal market to the legal market?

The San Francisco city government has unanimously voted to remove cannabis taxes for the next 13 months. This proactive decree aims to cripple the illegal cannabis market in the state.

It is not hidden that many states are still struggling with illegal operators in the cannabis industry. Some areas of San Francisco are littered with unlicensed farms that generate huge revenues without a license or paying taxes. Aside from paying no licenses or taxes, these illegal sites still manage to cut costs by hiring undocumented or underage workers who cannot complain about the poor working conditions on the farms.

With the new decree, all farms will be on the same level and the illegal farms will have no advantage over the licensed farms within the state. The country needs more of these courageous steps!

A brief overview of San Francisco’s cannabis industry

San Francisco, California has one of the largest medical cannabis markets in the state. There are dozen of pharmacies in strategic locations across the city that are making huge profits every year. In San Francisco, medicinal and recreational grass is sold to adults 21 years and older. San Fran pharmacies are not allowed to sell to minors and in most cases require valid identification before selling cannabis products.

Despite the drug’s decriminalization, there are severe penalties for local residents who drive or use drugs in public places. Cannabis is still classified as a banned substance at the federal level, so it is illegal to consume the drug on federal premises. Although tourists come to the city to get a feel for the cannabis legal space, there is still a gray area that they need to avoid to ensure they are not barred from entering the US later.

Curbing the illegal sales of marijuana

Due to the high rates of illegal market activity, the city’s regulators decided last Tuesday to conditionally suspend the payment of cannabis corporate tax until December 2022. The council representative and draftsman of the law, inspector Rafael Mandelman, stated that this tax suspension is an efficient way not only to cripple illegal cannabis sales, but above all to support legal cannabis operators.

Many legal operators are not making as much profit as they should because the illegal operators have manipulated the system against them. Many illegal traders offer consumers the same quality of harvest at very low prices that most legal retailers cannot compete with. The cannabis corporate tax was introduced by the city’s electorate in November 2018. Legislation imposed a citywide tax on gross sales of legal cannabis companies that could range from 1 percent to 5 percent.

Solve a stubborn problem effectively

Supervisor Mandelman added that the San Franciscans benefit greatly from the state’s cannabis industry. Legal businesses created more jobs and residents had access to safer, more regulated products that could be traced back to a source.

In the statement, he expressed grief that the illicit market appears to be outperforming legal operators by undervaluing crops and lowering the cost of a cannabis company’s key operations. The continued illegal activity of these illegal establishments is damaging the city and its economy more than any other factor.

These illegal farms expose their workers to poor working conditions and consumers to cannabis products made with some dangerous chemicals. This city council mobile move will do more to keep new legal cannabis businesses alive and profitable. It will give them an advantage over the illegal operators in the state.

It is not a good time to pay more taxes

At the beginning of the new year, a new marijuana tax law should come into effect. Still, a survey of the current state of affairs in the legal industry shows that this is the worst time to impose a new tax on small or existing legal cannabis establishments.

The California Bureau of Legislative Analysts recently directly correlated state cannabis taxes and the rise in illegal cannabis deals. With more taxes being levied, it turned out that many people have chosen to start businesses illegally in order to save costs and make more profit.

The increase in thefts from legal cannabis farms and operations is also a concern. A little less than a month ago, BASA, a cannabis retail company on Grove Street, was broken into by an armed group. Several thousand dollars worth of cannabis products were stolen. According to security officials, this recent break-in was the latest in a series of thefts at the location. Legal cannabis operators are competing with illegal operators to sell, and are still battling a number of thefts that seem to be spiraling out of control.

Do more for industry

It seems fair that the city’s board of directors has finally taken a stand to endorse the legal cannabis establishments. The introduction of a new tax during this period would have backfired, so a win-win situation. Other policies and security measures can be put in place to protect these companies and the people who work there.

Additionally, in the statement, Mandelman announced that his office would work with the city controller’s office, tax office, city cannabis regulator, industry legal stakeholders, and other key people to analyze and compare the data on the Cannabis store sales in town as soon as this new order takes place.

Final note

The city’s recent crime wave, as well as intense competition from illegal cannabis sellers, has indeed put a strain on the city’s legal cannabis businesses. Small businesses will not be subject to the mandatory tax for the next twelve months. You will gain a foothold in the industry without competing with illegal deals that don’t pay the government a fee.

Mandelman ended his statement by announcing that new recommendations on tax rates will be presented to the board by the fourth quarter of 2022. Additionally, the cannabis industry could be restructured to help it maintain its edge over the illicit industry.

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