A plan that would have cut taxes on commercial cannabis in California is on hold indefinitely after the bipartisan legislation failed to pass out of an Assembly committee last week.
The bill, AB 3157, would have temporarily reduced the state excise tax on cannabis from 15% to 11% and suspended a separate tax on cannabis cultivation. The bill’s proponents said the measure, which would have reduced taxes for a period of three years, was meant to speed the transition away from the state’s thriving illegal market and into state-regulated sales.
“Today was another big win for the black market,” Assemblyman Tom Lackey, who co-authored the measure, said after Friday’s vote. “All we wanted to do is to level the playing field financially.”
The bill’s co-authors include Assemblymembers Rob Bonta (D-Oakland), Ken Cooley (D-Sacramento), Reggie Jones-Sawyer (D-Los Angeles), and Jim Wood (D-Healdsburg).
Cannabis growers and sellers in California, which launched the nation’s largest legal market at the start of the year, have complained that taxes are too high. They argue many consumers are shopping in the underground market to save money.
In some areas, combined state and local taxes can approach 50%.
But according to Lackey, opponents of the measure said it was too soon to slash taxes without further evidence they were driving consumers to the illicit market. He said he hopes to see the bill revived later this year despite being shelved by the Assembly Appropriations Committee.
Last week’s vote came shortly after reports that state cannabis tax revenue from the first three months of legal sales had fallen short of state budget forecasters’ estimates. The state expects to make $175 million in excise tax revenue in 2018, but the first quarter of the year saw just $34 million. If sales were to continue at that pace, the state would see about $39 million less than expected by the year’s end.
Prior to those reports, the tax-cut bill had passed through two other Assembly committees unopposed.
Cutting taxes could risk lowering state revenues, but it could also encourage more consumers to purchase their cannabis from licensed retailers rather than sellers on the illegal market who pay no tax at all. Analysts disagree over the best way forward.