Last week, Assembly Bill 286 was introduced by Assembly Member Rob Bonta which would eliminate California’s cannabis cultivation tax and reduce the excise tax from 15% to 11% through 2022. The measure is a reintroduction of a similar bill from last year, AB 3157, which would have also temporarily reduced California’s cannabis tax rate.
Supporters of the temporary tax reduction argue that California’s high tax rate on cannabis makes it almost impossible for legal operators to compete against illicit operations. Opponents of the reduction say that it is premature and that the real problem lies at the local level where more than half of the state’s local jurisdictions have refused to allow cannabis business activity. In addition, education and mental health groups believe that the tax reduction will delay and/or reduce much need funding to support youth drug prevention and equity programs in communities that were impacted the most by the war on drugs. Discussions on funding these vital programs will heat up in May after the Department of Finance has a clearer picture of tax revenues generated from cannabis.
In a committee hearing on AB 3157 last year, committee members expressed concern over the state’s ability to repay the outstanding loan of $135 million that was provided to state agencies to fund enforcement and oversight. In Governor Newsom’s first budget released in January, more than $200 million was allocated to cannabis enforcement and oversight. How much of that is a General Fund loan that will need to be repaid and how much pressure this creates to maintain the current tax rate is to be seen. Stay tuned.
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