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Should Cannabis Entrepreneurs in California be worried about the Tax Man?


icon  01 Dec, 2016  /  icon  0        Author: Jack

The legal cannabis industry in California is expected to include everybody: store front sellers, backyard growers, dealers offering marijuana for sale online and the farm belt as well. Meanwhile, California state tax collectors are making the initial moves to get a hand into this increasingly growing industry. The state treasury seeks to benefit from the billions of dollars that are at stake in California’s future. State analysts estimate that both the local and state governments may end up collecting more than $1 billion per year from the manufacturing and sale of legitimate marijuana. Still, no one can tell how big this industry will become. For the state, there is no sure way of predicting the number of retailers that will join the market place as the business kicks off in the coming months. However, it is estimated that cultivators could be to the tune of 25,000. These will be required to register and start paying taxes accordingly. Experts believe that there will be some marijuana business operations that will endeavor to remain in the black market, probably to evade these tax issues that they are not used to. Jerome Horton, a member of California’s tax-collecting Board of Equalization says that it will be the wild west out there.

The Board of Equalization panel began structuring its job. The panel approved on a divided vote, an application to request money for gradually adding staff members in anticipation of collecting revenue tax from the legitimate sale and growing of cannabis. The action taken by the board came in barely three weeks following the passing of Proposition 64 in the 2016 elections. Proposition 64 decriminalized recreational marijuana use in California, a state considered to be the most populous in the United States. State organs concerned with the business of marijuana prepare to police the cannabis industry and ensure that every dealer pays up. All the same, there still are a number of uncertainties. Some of the board members saw the need to update these figures in the coming months. In the meeting that was held in Culver City, California, Horton felt that the projections were understated. One of the board members, Diane Harkey made a suggestion to take what has been mainly an illegitimate marketplace and transfer it to operate under state government. There is the will even though there is not much to tell how this will work.

Legal medical marijuana was first embraced in California in 1996 and the board makes estimation that there are about 1700 marijuana dispensaries that exist in the state today. The vote legalizing recreational marijuana use represented the biggest victory for the national legalization movement. This recent development sets the platform for a sweeping transformation for people to buy marijuana. The new regulations seek to tame the weed market that includes both legal, medicinal manufacturing and sales to the immense illegal cultivations that are conducted through drug cartels. Ideally, California will start treating marijuana and alcohol the same. The law will come into effect by 2018 where adults aged 21 years and above will legally possess a maximum of an ounce of marijuana and also be allowed to cultivate six marijuana plants per household. The law also allows counties and cities to impose their own controls and taxes on the use of recreational weed.

Proposition 64 defines two new taxes by the state of California where marijuana consumers will be required to pay 15% excise fee on the retail selling price. This excise tax will apply to both medical and recreational marijuana. Again, there will be a cultivation tax that will be imposed on all harvested weed that goes into the commercial market. Local governments can also impose their own taxes and many other communities are prepared to establish new regulations and tax levies. With the growing of marijuana business, there are fears concerning possible violence from cartels and criminal gangs protesting against tax investigators in their search for hidden cultivations. At the same time, weed remains illegitimate at the federal level and the position taken by the newly elected Trump administration cannot be told. Along with other marijuana-friendly states, California could face some hurdles. Trump’s appointment of Senator Jeff Sessions sends fears among states that have decriminalized cannabis because he has over the years spoken ill of this herb.

Well, the state’s $1 billion annual tax collections on marijuana as predicted by state analysts may be an obscure target. It could take some years before the system gets streamlined with fears of the illegal market failing to conform.  There is a need to design new systems. With the federal government still terming weed as illegal, tax payments may end up being paid in cash. It is a challenge for the agency especially when such payments are to be made on a large scale. There is a chance that some may not pay up.

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