Marijuana Business Magazine November-December 2019

Marijuana Business Magazine | November-December 2019 178 For information about cannabis regulations in other markets, order the Marijuana Business Factbook at mjbizdaily.com/factbook. Main measures MMJ business regulations State tax requirements Sampling of state licensing & application fees Proposition 64 (Passed in 2016) The state’s recreational law builds on the package of MMJ industry regulation bills approved by the Legislature in 2015 and put new rules in place in January 2019, which created 26 distinct categories of business licenses and licensing fees. The change charged the Bureau of Cannabis Control, California Department of Food and Agriculture and California Department of Public Health with regulatory oversight and rulemaking responsibilities. It also requires companies to obtain both local and state business permits, which creates additional hurdles for companies. Recreational cannabis is subject to a 15% excise tax as well as state sales and use taxes (7.25% state tax base). APPLICATION Cultivator: $135-$8,655 (depending on scale, location and use of lights) Distributor: $1,000 Manufacturer: $500 (for a shared- facility license); $1,000 (for all other types) Microbusiness: $1,000 Retailer: $1,000 Testing lab: $1,000 LICENSE Cultivator: $135-$8,655 (depending on scale, location and use of lights) Distributor: $1,500-$240,000 Manufacturer: $2,000-$100,000 Microbusiness: $5,000-$30,000 Retailer: $2,500-$57,000 Testing lab: $3,000-$112,000   What to watch The state Legislative Analyst’s Office is scheduled to release a report in January 2020 regarding state marijuana tax revenue. This report could be fodder the industry can use as political ammunition to fight for lower state taxes, which would make legal businesses more competitive with the illicit market and therefore actually increase tax revenues to the state. Regardless, another attempt is expected starting in January from lawmakers interested in lowering state MJ taxes, as bills to that effect were introduced in 2018 and 2019, to no avail. In 2020, expect more licensing opportunities to emerge around California, both through organic growth as more municipalities and counties enact local regulations and issue more permits and as cities such as Los Angeles issue more permits on their own through slow-moving processes. There will also likely continue to be a secondary market for business licenses, with licensees selling their permits, which often fetch millions of dollars on the open market. Market AtA Glance | California In many ways, 2019 has been a year of growing pains for California’s recreational marijuana market. The year opened with final regulations in place, including requirements that companies transition from temporary to annual business licenses. Temporary business licenses, which had been fairly easy to obtain, began to expire in January. With 5,500 cultivation licenses expiring in March and April alone, logjams at the regulatory level prevented some of these licenses from being renewed in time, fueling fears of product shortages and putting legal businesses in the tricky position of deciding whether to continue operations without a legal license. California’s adult-use industry is still facing pressure from the illegal market, too. While legal operators scrambled to obtain the necessary and sometimes costly permits and licenses, illegal businesses were able to operate without these expenses and time constraints—and without the tax burdens of the legal mar- ket. Illegal market activity has been reflected in the state’s mari- juana tax collections, which have been lower than anticipated. As these issues shake out and consumers become more accustomed to legal cannabis activity, California’s recreational market will continue to work toward stability in 2020, leading to continued growth and eventual maturity. —Maggie Cowee and John Schroyer Photo by Utsav Shah