Slapping high taxes on sales of marijuana in California, where the recreational use of cannabis became legal at the beginning of this year, will play into the hands of the state’s black market.
This fear has been voiced by both political analysts and concerned cannabis-related business owners who point out that the hefty tax on weed will drive users underground.
Social media is being inundated with gripes from “weedsters” who are posting copies of their tax receipts to prove their point. Hash-tags like “California is screwing us” appear alongside purchase slips. One of these was for a purchase amounting to $450 that was taxed a further $137.25! It was for the purchase of one ounce of high-end weed from a store in LA.
Tax break-down on a one-ounce weed purchase
Excise Tax of $67.50 which, ironically, will be used for drug prevention programs! The money will also fund other services, like law enforcement.
Sales Tax of $42.75 which funds services such as transport, social services, and public safety.
City Tax of $27.00 which funds city services projects.
Apart from end-users, the legal cannabis industry has to comply with new regulations and taxes on cultivators imposed by the state. Growers have to pay taxes, per ounce, of $1.29 on fresh cannabis plants, $2.75 on dry-weight cannabis leaves, and $9.25 on dry-weight cannabis flowers.
The overall tax picture
Legal sales of cannabis in California are subject to 15 percent excise tax. While that rate is in line, or even below, taxes payable in other states where recreational cannabis use has been legalized, Californians also have to pay additional local taxes.
Depending on the city, additional local taxes vary from 5 percent to 15 percent, and that is over-and-above regular sales taxes of between 8 percent and 10 percent.
So yes, it’s great that “doobie” can now be bought from the local store, but recreational users will have to pay up to 40 percent in taxes for the pleasure.
It is being predicted that California will collect a whopping $1 billion in excise tax on the sale of legalized cannabis, and Governor Jerry Brown has set a preliminary budget of $643 million for the 2018-19 financial year.
While consumers are overjoyed that California has finally followed in the footsteps of many other states and legalized weed for recreational use, many have expressed concern that the exorbitant taxation levels will make cannabis purchases a luxury only the rich can afford.
There is hope on the horizon
Wholesale prices of cannabis have been plummeting in other states where marijuana is legal, and California will no doubt follow this trend.
According to Keith Humphreys, a psychiatry professor who studies marijuana policy at Stanford University, Washington is a perfect example supporting this prediction.
He says the black market cost of one ounce of weed was in the region of $400 in 2014 when the state legalized recreational cannabis sales but prices started dropping within three months, and today stands at around the $40 an ounce range.
Humphreys is confident that California will experience the same trend and predicts that this downward spiral could happen even more quickly because the state has rejected a proposal to cap marijuana farms at one acre.
In excess of 700 cannabis farms have already received temporary licenses, with a lot more in the pipeline expected to be approved within the next few months.
It is for these reasons that Humphreys is predicting a rapid reduction in prices.
California is already being pressured to reduce cannabis tax levels, but Humphreys is urging the state to stand firm.
He points out that as the cost of cannabis drops, so will the revenue from taxes.
Humphreys has also expressed concern that cannabis could become “too cheap”. This would have a negative impact on drug addiction and on vulnerable members of the population.
Taxes on medical cannabis products are at least 20 percent, and the president of the American Alliance for Medical Cannabis, Rich Miller, has appealed to the state to reduce tax levels for senior citizens and medical patients.
California’s legal cannabis industry could suffer setbacks as high taxation on marijuana sales are expected to act as an accelerant for the black market.
Some analysts believe that the state should hold firm on current tax levels because predicted future price drops for cannabis will decrease California’s income rate.
State coffers are expected to receive a R1 billion cash injection from the sale of cannabis and related products now that the industry has been legalized.
California will have to take cognisance of the fact that as legalized cannabis becomes cheaper, it could fuel a drug addiction problem, as well as attract more vulnerable members of society into taking drugs.