Tax cut for proposed for California pot industry

LOS ANGELES (AP) — California’s governor on Friday proposed a tax cut for the state’s struggling legal marijuana industry, but businesses said it falls far short of what’s needed to revive a foundering pot economy.

Broad legal sales began in California in 2018, but the industry has been burdened by hefty taxes that can approach 50% in some areas, costly regulation and competition from a flourishing illegal marketplace, which industry analysts estimate is at least twice the size of the legal one.

Meanwhile, a glut of cannabis from corporate-scale farms has sent wholesale prices into a tailspin, leaving some growers unable to make a profit.

California was once envisioned as a national model for legal sales, but industry leaders warned Democratic Gov. Gavin Newsom in December that the state’s licensed industry was verging on collapse and needed immediate tax relief and a swift expansion of retail outlets to survive.

In a proposal to the Legislature for the budget year that starts in July, the Newsom administration recommended eliminating the much-despised cultivation tax, which is set at $161 on a pound of buds. But to make up for those lost funds, the state after three years would raise the excise tax imposed on retail cannabis purchases to 19%, up from the current 15%.

Under the proposal, however, an excise tax jump could come sooner.

If the state isn’t taking in enough cannabis tax money to support a range of education, law enforcement and other programs — a total of $670 million each year — the excise tax could be stepped up to cover that gap as soon as January 2024, though not necessarily to the 19% level. Additionally the state is putting up a one-time $150 million stream of funds to help cover those costs.