The latest California budget submitted by Gov. Gavin Newsom could go a long way in fixing the state’s ailing recreational marijuana industry by fully eliminating an oppressive cultivation tax.
Newsom’s May revisions to the 2022–23 fiscal year budget call for some significant statutory changes to the state’s cannabis tax system. The biggest change would be zeroing out the cultivation taxes beginning in July. The excise tax of 15 percent would remain intact.
When Californians voted to legalize recreational marijuana cultivation and sales back in 2016, the industry ended up saddled with state and local taxes that make it inordinately costly to attempt to sell or buy cannabis legally. As a result, the black market for marijuana still dominates sales in a state where it’s legal to buy it. Industry analysts estimate about $8 billion in black market marijuana sales annually in California—double the amount of marijuana purchased through licensed dispensaries.
The cultivation tax has been consistently eyed by industry analysts as a problem. This particular tax is unique among agricultural products in California, and due to the legislation passed in 2017 to establish tax authorities, it’s regularly adjusted for inflation. As a result, cultivation tax rates actually increased at the start of 2022 despite this big black market problem.