The 2020 California legislative session began in January, and marijuana industry insiders say what happens by time it concludes could be make-or-break for the state’s legal MJ industry as it deals with ongoing challenges around taxes, the illicit market and local municipality restrictions on cannabis firms.
The dominant topic on the minds of California cannabis businesses is the steep taxes they pay. Many suggest this remains one of the biggest barriers to their success.
That’s because high tax rates mean they must charge higher price points than the illicit market, which remains alive and well.
“Tax reduction, tax simplification, enforcement and retail expansion are the four buckets that (the United Cannabis Business Association) is focusing on, on all of our bills this year,” said Jerred Kiloh, president of the UCBA.
Kiloh noted the industry is in dire need of help from state lawmakers. He predicted a lot of systemic change will ultimately wind up in the California governor’s trailer bill – a measure that usually doesn’t get introduced until the spring and often is an omnibus package that includes sweeping reforms for many parts of state government.
“There’s nothing settled about this market so far. Legislative bills and the governor’s trailer bill are going to be paramount for this industry to continue to grow,” Kiloh said.
Max Mikalonis, a legislative advocate at Sacramento-based K Street Consulting, said the current legislative session is going to be crucial to setting up the industry for long-term success. He’s hopeful if for no other reason than that Gov. Gavin Newsom has already signaled his willingness to work with the industry on tax simplification.
Newsom and other key stakeholders may even throw their weight behind a tax reduction plan, if the industry plays its cards right and can figure out a way to cut or rearrange the marijuana tax system so the state doesn’t lose revenue, Kiloh added.
Newsom has also already announced the merging of the three state agencies that oversee the trade into a single entity by the summer of 2021.
And all of those are positive signs, Mikalonis said.
“The landscape has changed, with the governor interested in addressing the issue (of marijuana taxes). The question now becomes, what are the nuances of that and how much (tax) relief?” Mikalonis said. “There are big questions yet to be answered.”
Those are far from the only cannabis business topics that lawmakers may deal with, however.
There are also bills that are still on the way, including one that UCBA is trying to find a home for that would mandate an opening for the cannabis industry in localities where recreational legalization was approved by a majority of voters in 2016. But that has yet to fully take shape.
What follows is a sampling of some of the bills introduced so far that could have ramifications for marijuana companies.
What it would do: Give more leeway to manufacturers by changing the testing variance allowed for edibles from its current 10% allowed variance of milligrams of THC per serving to 12%. In 2022, the requirement would revert to 10%.
Current status: Passed Assembly, waiting for consideration in Senate Rules Committee.
What it would do: Save on packaging costs for manufacturers by allowing products to be tested without having first been packaged as they would for retailers to sell to consumers.
Current status: Passed Assembly, waiting for consideration in Senate Rules Committee.
What it would do: Protect financial institutions under state law that do business with cannabis companies.
Current status: Passed Assembly, waiting for consideration in Senate Rules Committee.
What it would do: Reduce the excise tax rate to 11% from 15% and suspend the cultivation tax entirely. Both would revert to their original forms in July 2023, so the tax relief would only be temporary.
Current status: Waiting on hearings in Assembly Business and Professions Committee and the Revenue and Taxation Committee.
What it would do: Allow state MJ licensing authorities to fine landlords up to $50,000 per day per violation for knowingly renting space to unlicensed cannabis companies.
Current status: Awaiting a hearing in the Assembly Business and Professions Committee.
What it would do: Allow state MJ licensing authorities to levy civil fines of up to $30,000 per day per violation for anyone found to be aiding and abetting unlicensed commercial cannabis activity.
Current status: Awaiting hearings in the Assembly Judiciary Committee and Business and Professions Committee.
What it would do: Allow the state attorney general, on behalf of city and county authorities, to levy civil fines of up to three times the licensing fees for unlicensed commercial cannabis activity.
Current status: Awaiting hearings in the Assembly Judiciary Committee and Business and Professions Committee.
What it would do: Require the Bureau of Cannabis Control to develop a model local ordinance, and to make the model local ordinance publicly available on its website. The aim is to encourage local governments to allow more cannabis businesses to set up shop by easing the regulatory setup for cities and counties.
Current status: Introduced, awaiting committee assignment.
What it would do: Allow hemp-based CBD to be infused into foods and beverages and sold in California.
Current status: Introduced and awaiting committee assignment.
What it would do: Expand the state’s medical marijuana program by exempting MMJ from various taxes, including sales tax, as long as the products are purchased by patients or caregivers.
Current status: Introduced and awaiting committee assignment.
What it would do: Allow licensed MJ companies to give trade product samples to each other free of charge.
Current status: Passed the Senate, awaiting hearing in Assembly Appropriations Committee.
John Schroyer can be reached at johns@mjbizdaily.com
