Local governments in the state of California are granting tax relief to marijuana businesses after state legislators failed to lower cannabis taxes. The tax rollbacks by counties and cities primarily reflect lobbying from local businesses and residents as well as industry organizations.
The local governments have argued that taxing the industry at all levels of the supply chain is strengthening the illegal cannabis market while also making it hard for marijuana companies to stay afloat and conduct their business. Various localities including the counties of Sonoma and Humboldt and the cities of San Diego and Desert Hot Springs are a few that have granted tax relief to businesses participating in this burgeoning industry.
This comes after California’s wholesale marijuana prices dropped in 2021 because of a supply glut. Prices started rebounding recently. The rollbacks also come in the midst of accusations from industry insiders, local legislators and operators that the state hasn’t done as much as it could to properly address tax reform. Currently, cannabis license holders in the state are subject to a cultivation tax of $161 per pound. They are also subject to a 15% excise tax as well as other taxes levied by county and city officials.
At the start of this year, California Gov. Gavin Newsom vowed to address tax reform. Since then, a number of measures that address marijuana taxation have been introduced, including SB 1293, SB 1281, AB 2506 and AB 2792. Of these bills, Senate Bill 1281 is the most comprehensive. It would do away with the state cultivation tax and decrease the excise tax to 5%.
However, even with the obvious need for relief, these legislative actions may not take effect until 2023, which is why localities are taking charge. Localities that are considering or have implemented marijuana tax relief and reductions include Humboldt County, which reduced the county’s cultivation tax by 85% last month. This temporary reduction in cultivation tax demonstrates its commitment to cultivators who have committed millions to Humboldt’s economy in the last few years.
In January, the Board of Supervisors in Sonoma County also voted to put off the payment of taxes imposed in the first quarter of this year until the end of April. The taxes levied will be due without interest or penalties.
The Board of Supervisors in Monterey County may soon vote to reduce cultivation tax in the jurisdiction while the city council of Cloverdale also plans to decrease tax rates for all licensees.
As efforts to reform the tax policies surrounding marijuana gather steam, licensed companies such as Cannabis Strategic Ventures Inc. (OTC: NUGS) could soon dent the illicit marijuana market that has partly been helped by legal products that are too costly, which pushes consumers to the black market.
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