*This article first appeared on SFGATE.com
California’s beleaguered pot industry was given another piece of bad news Thursday afternoon: The state cannabis tax rate will increase from 15 percent to 19 percent on July 1, the highest allowed by state law.
The 26 percent change, devised by Gov. Gavin Newsom, is ironically being made precisely because the state’s legal industry is floundering while the illicit market thrives.
Representatives with the California Department of Tax and Fee Administration announced the gross receipts tax hike during a cannabis advisory meeting Thursday. State law requires the department to increase the pot tax rate this year if cannabis excise revenue falls.
Jerred Kiloh, the president of the United Cannabis Business Association, said the tax increase will only make it harder for legal stores to offer cannabis at a price point that competes with illegal stores.
“More businesses will close sooner as the legal price is just too far away from illegally obtained products. Less investment in starting or continuing cannabis operations will occur, and demand for cannabis licenses will decline exponentially,” Kiloh said.
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Cannabis tax revenue has plummeted as the legal marijuana market goes through a financial contraction, with thousands of companies going out of business. Industry leaders have blamed the legal market’s struggles on expensive regulations, high taxes and competition from the thriving illicit market, which pays no cannabis taxes. A recent study funded by the state found that the majority of cannabis users still purchase their cannabis from the illegal market.
The tax increase is thanks to a law Gov. Gavin Newsom signed in 2022 that removed a cultivation tax but also required the state to increase cannabis tax rates if revenues fall in the future. San Francisco Assemblymember Matt Haney introduced a bill this year that would block the tax hike. The bill is working its way through the Legislature and unanimously passed its latest committee vote on April 24.
Amy O’Gorman Jenkins, the executive director of the California Cannabis Operators Association, said in an email to SFGATE that cannabis businesses already can’t afford to pay the 15 percent tax rate, let alone operate under the impending tax increase.
“We’re urging the Legislature and Administration to act quickly and freeze the tax at 15 percent. If we want a regulated market to survive in California, the time to intervene is now,” O’Gorman Jenkins said.
