Marijuana Leafs

Marijuana Tax Cuts in New Budget

California has unveiled an official budget proposal that calls for an end to the state’s marijuana cultivation tax. Here is what you should know.

Money Moves

Gov. Gavin Newsom’s May budget includes steps to combat the illegal weed market by eliminating the cultivation tax that incentivizes growers to go off the grid. Over the past few years, there has been a sharp rise in illicit marijuana cultivation and the ignition of a flourishing illegal market despite statewide legalization.

Many in the industry blame the high cost of permits and licenses and expensive cultivation taxes for the increase in illegal competition. These expensive measures are in place to protect the legality of cannabis farming and distribution but have driven countless businesses away from the legal path.

In response to these issues, the state legislature and regulatory bodies have discussed lowering and even eliminating the cannabis cultivation tax altogether. Stakeholders and cultivators alike are hopeful that these changes will improve conditions and level out the playing field for growers.

Research

A study by the Reason Foundation found that monthly tax revenue would increase overall if the cultivation tax were removed. IN other words, by eliminating the annoying tax, more businesses would legitimize and begin paying business taxes to the state.

In addition to making business easier for cultivators, the study found that getting rid of the cultivation tax could potentially make cannabis and marijuana more affordable for consumers which in turn creates more demand and sales for businesses.

Overall, the projected result of these claims is positive with less pressure on cultivators and more reasonable prices for consumers. Gov. Newsom and other supporters of the move are optimistic that the change will encourage more cannabis businesses in California to legitimize thus ending turf wars and disputes that complicate the status of the industry.

On the matter of removing the tax, the governor told the media that “We have been working very closely with legislative leaders, and we have made tremendous progress. We have not finalized any of that, so I want to be careful not to disrupt that progress.”

The legislature has yet to pass the budget, but things are looking up for cannabis farmers.

Other Budgetary Benefits

In addition to eliminating the cultivation tax, the budget includes provisions for a one-time “cannabis local jurisdiction retail access grant program” which would support the development of local retail stores. Approximately $20.5 million has been allocated to the program and if passed, communities across the state could get the support they need to foster small cannabis businesses and local ventures.

The governor and other members of the legislature are also hoping that measures in the budget pertaining to the overall simplification of the cannabis tax system will pass. So far, the state has recognized complaints from businesses large and small that the current tax system for the cannabis industry is overly complex.

Not only is the tax system confusing, but it also creates problems for smaller businesses that may not be able to consult with a tax or cannabis law attorney about their obligations as an entity in the industry. Small errors can have big consequences in the state, which is why many are pushing for a more streamlined approach.

Takeaway

The governor has included an official order to end the cannabis cultivation tax in the proposed budget. The legislature will need to approve it, but along with the tax cut are many other, smaller, changes that would improve conditions for cultivators and distributors throughout California.

For those in need of assistance with these new changes, or other operational matters in their cannabis business, Purdy & Bailey, LLP can help. Our experienced attorneys have helped countless cannabis cultivators succeed and run their businesses in concordance with the law.

Contact our firm to learn more.