Although California is home to the largest cannabis market in the country, it is vastly overshadowed by the illicit market. Compared to the $8.7 billion that illicit cannabis sellers earned in 2019, the legal market only brought in $3.1 billion. In a bid to increase legal sales and reduce the dominance of black market sellers, regulators in the state recently passed tax reforms that would reduce the tax burden on licensed cannabis businesses and make their products more affordable.
However, cannabis businesses in California still aren’t satisfied with the tax cuts, claiming that they are too modest to have any significant effect on the illicit market’s dominance. During a floor speech where he criticized the tax-reform bill, Senator Scott Wiener said that unless we acknowledge that the Californian market is overregulated and overtaxed, we will continue fueling the cannabis black market.
Ever since California legalized recreational cannabis in 2016, stakeholders have complained about numerous taxes along the cannabis supply chain that have made legal products much more expensive compared to similar products on the black market. Unsurprisingly, most consumers prefer to purchase illicit products because they are cheaper. Businesses say that the recent tax cuts, as well intentioned as they may be, simply aren’t enough to give the legal market a competitive edge over the illicit market.
Although the legislation eliminated a weight-based tax that was levied on cannabis growers, it didn’t eliminate the 15% retail sale tax and it granted officials the authority to raise the rate of retail tax in the future to regain the revenue the state would have given up from the cultivation tax. Southern California Coalition executive director Adam Spiker says that while the tax reforms are a good landing spot, they definitely won’t solve the problems plaguing California’s cannabis industry.
Unfortunately, the roaring black market for cannabis products impacts state cannabis programs across the country, with several states losing billions of dollars in revenue and legitimate businesses losing clientele to illegal sellers. This problem is most felt in California where a medical cannabis market has flourished since Proposition 215 relaxed medical marijuana regulations in 1996.
Most of the businesses that built up networks and contacts in this market are now using them to move unlicensed recreational cannabis products. Additionally, only 40% of the counties and cities in California have approved retail cannabis businesses, meaning millions of Californians simply don’t have access to legal cannabis. So while the recent tax cuts can offer legal sellers some reprieve in the short term, dealing with the factors that have bolstered California’s illicit market will require more time and effort.
In the meantime, cannabis companies such as American Cannabis Partners will have to operate the best way they can under the existing regulatory and tax regime in California.
NOTE TO INVESTORS: The latest news and updates relating to American Cannabis Partners are available in the company’s newsroom at https://cnw.fm/ACP
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