When grassroots cannabis growers leave their fields unplanted rather than risk taxes on unsold products, you know something has gone awry.
Local legislators across California have indeed risen to the challenge presented by complex and expensive tax structures and have begun the effort of dismantling the tax structure themselves—long before any proposed changes will take effect at the state level.
The inclusion of cannabis on California’s 2016 ballot and the legalization that followed left lawmakers with an unrealistic picture of the tax revenue they could expect from California growers and operators.
The heavy rate of taxation fell primarily on growers, who could come to expect a state cultivation tax of $161 per pound of cannabis grown and an additional 15% excise tax, plus all taxes levied by city and county officials.
In short, an untenable relationship between taxes and growers—something that even Governor Gavin Newsom has pledged to address. In the meantime, it appears communities are stepping up themselves to provide relief in the short term.
Relief is on the way for growers by way of municipal reforms. These measures are revisiting, retargeting, and in most cases, dramatically lowering the extent to which taxes are cutting into cultivator profits. This action contrasts the state policies, which appear to be “wait and see” until a crisis emerges—something that is already happening in the lives of many farmers.
The question remains—how did we get here?
We take a look at California’s recent budget and how the paradise of cannabis as a cash crop for state coffers is quickly coming to an end.
After all, with California’s budget surplus reaching $31 billion, all cannabis taxes could be cut by the governor tomorrow, and the state would still see incredible profitability—why should farmers carry the weight of poor legislative planning?
A Look At Proposed Changes
The proposed changes to tax structures are varied, but most target cultivators directly. With California’s long history of food cultivation, it is no wonder that unfurrowed fields have put pressure on local legislators to protect industries that have made California an agricultural powerhouse.
In San Diego, for instance, the city council voted to shrink the tax rates surrounding production facilities from 8% to 2%. For an industry with razor-thin margins and competition from in-state and out-of-state growers, this represents a long-needed reprieve from tax policies that had previously driven growers into untenable positions.
Palm Springs, likewise, reduced the tax rate from 10% to 2% in 2019, with Long Beach dropping their rate by 5% around the same time. San Jose dropped their flat-rate taxes from 10% to 4% for cultivation and eliminated the tax on testing altogether.
These are only the larger communities and cities—around a dozen smaller communities are all introducing measures that will reduce the tax burden on California cultivators.
Why This Is An Urgent Need for Grassroots Operators
These changes come on the back of a challenging year for grassroots growers following a crash of wholesale pricing that has only recently shown signs of rebounding. With more products than ever on the market, consumers expect lower prices, not higher. With supply high, competition tightened, and the State continued unabated its planned tax path.
It appears the people have had enough.
The tax cuts have come amidst claims from operators, local officials, and industry insiders that the state has done too little to address tax reform, among other issues, leading to what many are calling a crisis in California’s cannabis business.
Supply chains, high supply, and uncoordinated government Grassroots efforts have all combined to stall innovation and profitability in the California market.
Related Reading: Supply Chain Issues Across the Board in Cali
Cultivators in one of America’s oldest cannabis capitals face more challenging times than ever, and it’s time for legislators to step up. For the city coffers, profits may fluctuate, but these taxes represent the difference between survival and total business closure for licensed producers.
Of the detracting voices are those who claim cannabis is skirting by after avoiding taxation before legalization. Humbolt’s legislators sum up a response:
In temporarily lowering the region’s cultivation tax, Humbolt is proving the county’s “commitment to growers who have committed $50 million to our local economy in the four years since Measure S was passed,” Humboldt County Supervisor Rex Bohn said as his team moved to reduce the excise tax by 85% in February.
Cannabis growers, like all agricultural professions, are the future of the Californian industry. Not only do they provide valuable harvests, but they drive innovations in labs, product developments, B2B tech integrations, and above all—culture.