The California Legislative Budget Office suggests that the state moves to an “ad valorem potency-based or tiered tax” on cannabis to stabilize incomes and discourage abuse. The report recommends that the state get rid of the weight-based grower tax, but says that if the state maintains the current tax system, it should increase the excise tax by 5 % or risk not meeting the $350 million in annual cannabis tax revenue needed to fund all the programs outlined in the legalization bill.
The agency points out that Canada’s regulatory system includes a tax of C$0.01 per milligram of THC as well as sales taxes. And that a multi-level ad valorem tax would distinguish between different types of power and product. In Illinois, for example, products with a concentration of less than 35 %THC are taxed at 10 % and 25 % above (for concentrates in particular). And a 20 % tax is applied to cannabis-infused products such as space cake or CBD and/or THC beverages.
Ellen Komp, Deputy Director of the California chapter of NORML, said she was “flabbergasted” that the Bureau is suggesting that the tax rate be increased. The organization “expected them to recommend, or at least discuss, the benefits of a lower state tax. California is struggling to displace the black market, in part because of high taxes on products.
The report describes 4 tax structures, including the current model. And finds that while a tax on power is preferable to reduce abuses and increase revenues. The current model is more administratively efficient. A tax based on weight does generate stable revenues but is ineffective in reducing consumption abuses. A multi-level tax would reduce harmful consumption, increase stable revenues, and fund administration and compliance.
The current tax rate on retail sales of cannabis is 15 % in California. Similar to other states where cannabis use by adults is legalized. However, the state of California imposes up to 10% more taxes on non-medical cannabis. And cities are allowed to impose their taxes of 5-20%. Cannabis growers in the state also pay a rate of $9.25 per ounce (28g) for dried flowers or $2.75 per ounce for leaves. On January 1, this grower levy will increase from $9.25 to $9.65, while taxes on leaves per dry-weight ounce will increase from $2.75 to $2.87, and plant rates will increase from $1.29 to $1.35.