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California Eliminates Cannabis Cultivation Tax

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https://www.forbes.com/sites/ajherrington/2022/07/05/california-eliminates-cannabis-cultivation-tax/?sh=351e9d62de60

California’s regulated marijuana growers will see relief from some of the taxes that insiders say are stifling the industry with last week’s passage of a bill to eliminate the state’s cannabis cultivation tax. The legislation, Assembly Bill 195, was signed by California Gov. Gavin Newsom on June 30 after receiving broad bipartisan support in both houses of the state legislature the day before.

Under AB-195, California’s cultivation tax of more than $161 per pound of cannabis flower will be eliminated completely. The bill, which marks a significant change to California’s tax structure for the legal marijuana industry, maintains the cannabis excise tax at its current rate of 15% for the next three years, after which the rate could be adjusted to replace revenue lost due to the elimination of the cultivation tax. Lindsay Robinson, the executive director of marijuana trade group the California Cannabis Industry Association (CCIA), says that the “survival of the regulated industry is vital to providing ongoing tax revenues for the State and the advancement of public health and safety.”

“Eliminating the cultivation tax is just one step towards stabilizing our industry but it's an important one,” Robinson writes in an email. “CCIA has worked for the past four years to eliminate the cultivation tax and we’re extremely proud of this important first step. Stability of the cannabis supply chain brings jobs and much needed tax revenue to the state while also protecting public health and safety and keeping cannabis out of the hands of children.”

New Tax Credits For Some Cannabis Businesses
The measure also creates new tax credits for some cannabis businesses and transfers responsibility for collecting the cannabis excise tax from distributors to retailers. Additionally, AB-195 lowers to 10 the number of workers a business can employ before triggering requirements to create a labor peace agreement, which can lead to unionization by the company’s employees. Nicole Elliott, director of the Department of Cannabis Control and the governor’s lead cannabis adviser, said that the legislation was about as good as could be expected under requirements of Proposition 64, the 2016 ballot measure that legalized recreational marijuana in California, to fund social programs including childcare, environmental cleanup and impaired driving prevention efforts with cannabis tax revenue.

“I’m incredibly proud of this bill. It accomplishes an incredible amount of things for the betterment of all Californians,” Elliott told CalMatters. “So I think we need to take a moment to reflect on the fact that something great got done.”

The passage of AB-195 will help shore up cannabis growers, who have seen wholesale prices for marijuana drop by about 50% while the cultivation tax rate held steady. Genine Coleman, founder of the Origins Council, an advocacy group representing cannabis businesses in Northern California’s famed Emerald Triangle marijuana growing region, said that eliminating the tax will help small businesses survive in the state’s competitive regulated cannabis market.

“It’s incredible to have the cultivation tax eliminated,” said Coleman. “It had become so untenable.”

Kyle Kazan, chairman and CEO of Glass House Brands, which recently began operations at what will eventually be a massive cannabis cultivation facility in Southern California, is grateful for the elimination of the cultivation tax while calling on state leaders to further reform the cannabis tax structure.

Social Equity Advocates Say Bill Doesn’t Go Far Enough
AB-195 also includes a $10,000 tax credit for social equity cannabis businesses, which are firms licensed under programs to ensure representation in the industry from members of underserved communities and those harmed by cannabis prohibition policies. Social equity retailers will also be able to keep 20% of the cannabis excise they collect for a period of three years. But critics of the legislation say the bill does not go far enough for social equity businesses struggling to stay afloat in California’s cannabis market, which faces stiff competition from unlicensed operators that enjoy far less overhead and oversight.

“What we’ve gotten are essentially crumbs from this bill,” said Amber Senter, executive director of the advocacy group Supernova Women. “The cultivators will see relief, they will see a little bit more money in their pockets, and none of that is going to trickle down.”

Democratic state Sen. Steven Bradford, one of the few lawmakers who declined to vote for the bill, noted that the legislation primarily helps California’s cannabis growers, many of whom are wealthy and white, while Black and Brown social equity entrepreneurs will see far less of AB-195’s benefits.

“That’s a hard pill to swallow,” he said. “At some point, when are we going to put the real weight and work behind what we all say exists?”

Bradford said that he would continue working to eliminate the excise tax for social equity businesses and enact other policies to support diverse ownership in California’s cannabis industry.

“Without a doubt, there needs to be more work,” he said. “If we fall short of that, we’ll come back next session.”

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