At the beginning of 2022, tax rates for marijuana cultivated in California are set to increase, even though black market sales completely dominate the retail market in the Golden State.
Experts estimate that about three-quarters of all marijuana sales in California happen not through legal dispensaries, but through unlicensed vendors. California voters legalized the cultivation and sale of marijuana for recreational use in 2016, but extremely high taxes and oppressive regulations have caused the rollout to be a disaster.
The tax increase set to hit on New Year’s Day is a prime example. California taxes the cultivation of marijuana by weight. In the tax regulations that state lawmakers passed for cannabis in 2017, the cultivation tax rate was tied to inflation. When inflation rises, the cultivation tax will also automatically rise.
Inflation rose in 2021, and not by a small amount. The U.S. Bureau of Labor Statistics calculates that consumer prices rose nationally 6.8 percent between November 2020 and November 2021. Because of California’s law, cultivation taxes will rise 4.5 percent. For growers of fresh cannabis plants, the cultivation tax will jump from $1.35 an ounce to $1.41 an ounce. On top of the cultivation tax, the state charges a 15 percent excise tax, and the cities that allow dispensaries have their own local sales tax rates. A person attempting to legally buy marijuana in California can expect the price to balloon between 35–50 percent through tax add-ons, depending on the city.
This, obviously, will make it all the more difficult for legal vendors to compete with the black market. That the increase is happening anyway is absurd and should be seen as a warning against automatically tying any tax rate to inflation.