California state marijuana excise tax could go up July 1

Although the California marijuana industry has hoped for tax relief as it struggles to compete with a thriving illicit market, a tax increase could be on the way.

A tax hike would hit cannabis companies’ bottom lines and could drive more consumers into the illicit market in search of cheaper marijuana products.

But an increase isn’t a foregone conclusion. Moreover, a tax cut could occur.

The California Department of Tax and Fee Administration (CDTFA) uses a 60% markup rate, along with the average market price of wholesale marijuana, as a basis for the state’s 15% marijuana excise tax.

That markup rate must be recalculated every six months, and CDTFA Director Nicolas Maduros told an industry conference this week in Sacramento the excise tax may go up this summer.

“We’re responsible for resetting that markup rate every six months, so it will be reset July 1,” Maduros said during a panel with other MJ regulators.

“It’s based on market data, and I think particularly once … track-and-trace is more fully utilized, we’ll have some better pricing data to figure out what that markup rate should be,” Maduros added.

The state track-and-trace system launched in January but is used only by cannabis companies with annual business licenses.

And so far, just a fraction of the legal companies has obtained those permits, which means most of the industry isn’t feeding data into the track-and-trace system.

“We’re administrators, so it’s not up to us to sort of use that as a way to lower or increase the tax burden,” Maduros said.

“We’re simply looking at what the facts are. It’s up to the Legislature … to determine what the actual tax rate is.”

Asked if the markup rate – and therefore the excise tax – could increase, Maduros said: “It could.”

It’s worth noting, however, that the rate also could either decrease or stay the same.

A CDTFA spokesman wrote in an email to Marijuana Business Daily that there’s also no cap on how much the markup rate could increase – or decrease.

What a markup could mean

Maduros said after the panel that any decision on the markup rate and the excise tax will not be made until June at the earliest.

The markup recalculation would not affect the state cultivation tax, which is $9.25 per ounce of flower, $2.75 per ounce of leaves and $1.29 per ounce of fresh plant.

California Cannabis Industry Association spokesman Josh Drayton said that a tax increase “would only further damage the supply chain as it competes against the illicit market.”

But, Drayton emphasized, it’s possible the excise tax may either stay the same or even decrease.

He said it’s too early to tell what will happen with the CDTFA’s recalculation.

“I think we need full implementation of Metrc and track-and-trace before we consider any increase,” Drayton said.

“We have not seen any data that would support an increase in the excise tax for any part of the supply chain.”

Separately, a state bill to temporarily reduce state cannabis taxes is awaiting hearings in the California Legislature.

If successful, Assembly Bill 286 would reduce the excise tax from 15% to 11% and suspend the cultivation tax until 2022.

John Schroyer can be reached at [email protected]

3 comments on “California state marijuana excise tax could go up July 1
  1. Ziggy on

    What’s the total amount of tax, what taxes, what rates on 1 gram of flower from the time that it is harvested until we consumers buy it at our favorite dispensaries? What about online with delivery?

    What, if, it goes through multiple business entities, e.g.-cultivator, manufacturer, processor, distributor and/or retailer?

    Arms length and non-arms length?

    Existing data show that the legal market is NOT pushing out the illegal market. It appears that greedy regulators are TRYING to “kill the golden goose” rather than doing everything that they can to assure that it thrives. How possible is that?

    Reply
  2. BFB on

    These taxes coupled with the excessive regulatory fees and processes are driving most companies out of business or underground. Outrageous and prohibitive taxation. No margins for growers; why 90% are now “out of the process” at least in the Emeraldd Triangle. No chrity weed .. people are suffering. Very sad.

    Reply
  3. Walter Wood on

    The taxes on a smaller operation’s output (that gram or eighth you buy) average between 70% and 120%. This does not include any of the license fees, which add up to another 10k to 16k per year for a small outdoor operator (10,000 sq feet, which is less then 1/4 acre). With all the rules and regulations, I now have one full time employee helping me with paperwork, and still I am having a hard time making it out to my plants. The profit margins are very small to non existent, and taxes (that feel like a mafia protection racket) are collected on all product before the first sale is made. If the government is trying to regulate the small farmers out of existence, and to pave the way for the multi national corporate schwaag, then I believe it is all going just as planned. If that is not the plan, then some changes need to be made, and soon, before all the small farms go under. Many, many have already given up the fight, and more are giving up every day. If you want clean product, grown with care, PLEASE SUPPORT SMALL FAMILY FARMS! Find a small brand you haven’t heard of, and give them a try!

    Reply

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