SACRAMENTO – Assemblymember Bill Quirk (D-Hayward) is advancing efforts to disband the state cultivation tax on cannabis that burdens the legal industry. AB 2506, jointly authored by Assemblymember Tom Lackey (R-Palmdale), suspends the cultivation tax and maintains neutrality with state revenues by increasing the excise tax applied at the retail level. The California Department of Tax and Fee Administration will implement this change by July 1, 2023.
The cultivation tax applies at the beginning of the supply chain and is included into the wholesale cost of goods as it passes through multiple manufacturers and distributers. As a result, the cultivation tax compounds as other state and local taxes apply, enlarging the original tax burden by as much as 50 percent by the time it reaches end consumers. The stack of state and local taxes imposed on cannabis is one of the many factors that make legal cannabis much more costly than cannabis from the illicit market. Following a cultivation tax increase to adjust for inflation on January 1, 2022, the cannabis industry reignited its call for the state to restructure state cannabis taxes.
“Previous efforts to initiate tax relief for the legal cannabis industry have, unfortunately, failed passage in the Legislature,” stated Assemblymember Quirk. “The reality is that a viable approach will have to account for its impact on state revenue. This proposal to consolidate taxes on cannabis is crucial to fulfilling fiscal responsibilities of the state while successfully phasing out the cultivation tax, which is applied whether or not the product is actually sold.”
In a December 2019 report, How High? Adjusting California’s Cannabis Taxes, the Legislative Analyst’s Office found that the current weight-based cultivation tax is ineffective towards reducing harmful use, stabilizing tax revenue, and easing compliance for the industry. The report ultimately recommended its elimination and estimated that a revenue-neutral approach would likely suffice to fund programs identified under Proposition 64.
AB 2506 will help stabilize state taxes owed by the legal market and simplify tax administration. The bill be eligible to be heard in policy committee in March.