Weekly Roundup – May 11, 2018

Photo by pac bac on Unsplash
  • Tax revenues collected by the state in the first quarter of FY 2018 are far below January estimates
  • A bill to temporarily suspend the cannabis cultivation tax and reduce the excise tax passes its second legislative committee
  • A New York based medical marijuana manufacturer expands its presence into California
  • The Bureau of Cannabis Control Cannabis Advisory Committee holds its next meeting in Oakland

Cannabis Taxes Collected in Q1 of FY2018 Lower than Expected

On Tuesday, the Legislative Analyst Office (LAO) released a cannabis tax updated that showed California collected $34 million in excise tax in the first quarter of 2018. The Governor’s January budget assumed that the state would collect about $175 million in the first two quarters of 2018, far more than what the state has seen so far. For some in the industry, the lower than expected tax revenues reflects the clumsy rollout of a statewide legal system. Primary among the concerns by many in the industry has been 1) the slow process from reviewing and approving licenses at the state level; 2) the high-cost of complying with state regulations; 3) the widespread prohibition of cannabis business activities in many of the state’s cities and counties and; 4) the high tax burden that incentivizes consumers to buy in the illicit market.

Later today, the Governor will release his May Revise with updated estimates and potential funding and policy changes that may directly impact the industry. I will provide a brief recap of the Governor’s May Revision this week.

Does a Temporary Tax Reduction Have Legs?

On Tuesday, the Assembly Business and Professions Committee voted unanimously to temporarily suspend the cannabis cultivation tax and reduce the excise tax for three years. Supporters of AB 3157 say that California’s high tax rate makes it almost impossible for legal operators to compete against illicit operations that do not pay licensing fees or state and local taxes. Opponents of the bill say that the temporary tax reduction is premature, and 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 reduce much need funding to support youth drug prevention and equity programs in communities that were impacted the most by the war on drugs.

The Committee did express 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. As written in Proposition 64, taxes collected must be first used to cover he administrative costs of state agencies to implement cannabis laws. The next stop for AB 3157 is the Assembly Appropriations Committee. Stay tuned.

New York is Coming to California

Earlier this week, Etain, a women-owned and managed New York based medical cannabis company announced that they have joined forces with delivery company West Sacramento Management and Daily Green to produce and deliver products beginning this month. As one of ten medical dispensaries in Manhattan, Etain’s expansion into the Golden State follows approval in their home state to offer a water-soluble marijuana powder to medical patients. Approval for the water-soluble solution comes after New York regulators search for ways to jumpstart the state’s medical marijuana program in which growth has stalled since its approval in early 2016. Etain’s move to California is another in a series of investments by non-California businesses and investors. Recently, CannaRoyalty, a Canadian-based cannabis company announced several acquisitions of distribution assets throughout Northern California. The recent moves by both of these companies could signal more to come.

The State’s Cannabis Control Advisory Committee Meets in Oakland

Next Thursday, May 17, the Bureau of Cannabis Control’s Advisory Committee meets in Oakland California to discuss possible action on recommendations to modify the state’s licensing application, manufacturing and microbusiness requirements. The discussion will also include potential pathways on how to proceed with approved recommendations that require statutory change. Click here to review the agenda.

Questions about the budget, legislative or regulatory process? Contact us here or by email at info@thecannabisfile.com.

Would a Local Supermajority Vote Requirement For Fees and Taxes Hurt the Promise of California’s Statewide Legal Cannabis System?

Photo by Thought Catalog

A proposed November ballot initiative currently in the signature gathering phase could push many local governments further towards the prohibition of cannabis business activities in their area.

The Tax Fairness, Transparency and Accountability Act of 2018 would require all local fees and taxes to be approved by a two-thirds vote.

The initiative, sponsored by the California Business Roundtable argues that one of the main purposes of the measure is to overturn the “loophole” created by Cannabis Coalition v. City of Upland.

The case involved a 2014 initiative in Upland, CA that would repeal the city’s prohibition on medical marijuana dispensaries, create regulations permitting medical dispensaries, and would imposed a $75,000 annual licensing and inspection fee to cover Upland’s administrative costs.

The proponents of the initiative requested that the measure be considered at a special election, but the City of Upland believed that the annual licensing and inspection fee was actually a tax and therefore, belonged on the general election ballot as required by Proposition 218 passed in 1996.

The coalition challenged the City and initially the lower court sided with Upland. The California Appeals Court reversed the lower court’s decision and the California Supreme Court upheld the Appeal Court’s reversal.

In the majority’s opinion, the Supreme Court ruled that nothing in the State’s Constitution prohibited or restricted citizens’ to place a measure on the ballot to approve fees or taxes. What was left uncertain in the opinion, however was whether or not citizens’ initiatives are subject to the Prop. 218 two-thirds vote threshold required for local government sponsored initiatives. And that’s where the currently proposed initiative comes into play.

The sponsors of the current initiative, the California Business Roundtable, made of some of the state’s largest companies including Wells Fargo, Albertsons, KB Home, Blackstone Group, Chevron and others, argues that the proposed ballot initiative will close this loophole by ensuring all fee and tax proposals meet the high two-thirds threshold.

This measure, however, could have much broader impacts that stated or anticipated. Since the passage of Proposition 64 in 2016, one of the main sticking points in many local jurisdictions has centered around the ability of local governments to collect an fair and appropriate amount of fees and taxes to support local law enforcement and programs with cannabis generated tax revenue. Recently, the O.C. Register released a database that showed that fewer than one in three California cities allows any cannabis business activity in their area.

If a two-thirds vote requirement is required to implement local cannabis-related fees and taxes to cover enforcement and oversight administration, where’s the incentive for local governments to adopt cannabis friendly business policies? The “carrot” included in Prop. 64, was the ability for cities and counties to raise revenues to fund local priorities. With a higher-vote threshold, it’s not hard to imagine many of the local jurisdictions that are still on the fence will decide to sit on their hands and not approve cannabis business activity in their area. Without easy access to licensed retailers statewide, consumers will continue to be forced into to buy their products from the illicit market.

As of this article, the proposed initiative had gathered 25% of the signatures needed to qualify for the November ballot. The coalition has until July 25, 2018, to gather all 585,407 valid signatures to qualify.

Questions about the initiative process? Contact us here or at info@thecannabisfile.com.

Is the “Partisan” Divide Over Cannabis Crumbling?

Photo by mahdis mousavi

Over the past week, the Democrat vs. Republican divide on cannabis appeared to weaken as a prominent Republican made an announcement signaling a level of support for medical and legal adult-use of cannabis.

Last Wednesday, former House Speaker John Boehner announced that he had joined the board of a national cannabis business, and shared that his views on cannabis have evolved over the years to support legal use of medical marijuana. The announcement by was 180 degree turn from a few years ago when Boehner took a hardline stance against legalization. While some say Boehner’s change of heart is merely a reflection of his opportunity to cash-in on a growing industry, others believe that his evolved stance reflects the changing attitudes of Americans and marijuana.

Aside from the various and significant medical benefits of cannabis, one of the direct benefits of legalizing marijuana use is the opportunity to create good paying jobs for people, especially in rural areas.

In a review of Colorado’s legal cannabis industry by New Frontier Data, a cannabis research firm, over 18,000 new jobs were created in the first  three years of legalized use. Of those, nearly 13,000 were full-time positions directly involved in the cannabis sector, and the remaining were created in auxiliary services such accountants, construction, legal, real estate, and other business services.

In California, two studies from the University of Pacific found that the potential for strong economic output and job creation in Sacramento and rural Calaveras County are significant. In their analysis, both Sacramento and Calaveras County were expected to create several thousand new jobs for two regions that have seen relatively stagnant job growth over the last decade. While these reports focused on two specific areas in California, their general assumptions could be applied to many of the rural counties and cities across the state.

Moving forward, as city councils and boards of supervisors debate whether or not to allow cannabis businesses in their jurisdiction, the positive economic impact and job creation potential has to be a part of the discussion.

Questions on how to get involved with your local city council or board of supervisors? Contact us here or at info@thecannabisfile.com.