Did you know that California is facing a whopping $37.9 billion budget deficit? In an effort to address this issue, Governor Gavin Newsom has proposed diverting funds from the state’s marijuana tax revenue.
However, this proposal has sparked controversy due to its irony – while cannabis businesses were left to struggle during tough times, the governor is now choosing to use their tax revenue to make up for the state’s overspending. As this solution is being presented, Gov. Newsom continues to tout ongoing efforts to improve and strengthen California’s legal cannabis market.
Proposition 64, also known as the Adult Use of Marijuana Act, not only legalized recreational marijuana but also established a tax system for cannabis sales. Under this law, a portion of the revenue generated from these taxes is allocated to the Cannabis Tax Fund.
According to Proposition 64, the funds in the Cannabis Tax Fund are prioritized for regulatory and administrative costs related to the implementation and enforcement of the Cannabis Act. Once these priorities have been met, the remaining funds are allocated to three main areas: education, prevention and treatment for youth substance use disorders; environmental protection, particularly focused on addressing illegal cultivation; and public safety initiatives.
This breakdown is known as Allocation 3, which aims to address important issues related to cannabis in California while also supporting the state’s budget deficit.
The Budget estimates $568.9 million will be available for Allocation 3 programs in 2024-25 as follows:
• Education, prevention, and treatment of youth substance use disorders and school retention—60 percent ($341.3 million)
• Clean-up, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation—20 percent ($113.8 million)
• Public safety-related activities—20 percent ($113.8 million)
AB 195 requires that these Allocation 3 programs are funded at a baseline of approximately $670 million, this is where the leftover $100 million comes into play.
Governor Newsom’s Proposal
In response to the budget deficit, Governor Newsom has proposed a budgetary loan of $100 million from the Board of State and Community Correction’s Cannabis Tax Fund subaccount to the General Fund. Which is proposed “from resources not currently projected to be used for operational or programmatic purposes.” This means that extra funds originally intended for specific purposes within the cannabis industry will be redirected to help make up for the state’s overspending.
Governor Newsom’s proposal to divert $100 million from the cannabis tax revenue has been outlined as a loan, which will be paid back in the fiscal years to come. This means that the funds will eventually be returned to their intended purpose within the cannabis industry.
However, many are questioning why this support was not extended to cannabis businesses when they were struggling due to factors such as high tax rates and regulatory hurdles. It’s ironic that now, when the state is facing a budget deficit, the governor is choosing to use their tax revenue rather than providing assistance to an industry that was struggling in the past. This further highlights the ongoing challenges and disparities faced by California’s cannabis market.
In addition to proposing a diversion of funds from the cannabis tax revenue, Governor Newsom also touts ongoing efforts to improve and strengthen California’s legal cannabis market in his budget plan. (pages 96-97)
“The state continues to work to strengthen California’s legal cannabis market. Efforts to date include reform and simplification of the tax structure, fee relief to support entry into the legal market, investment in grant programs that foster equity, providing resources to cities and counties to expand pathways for local licensing and regulation of cannabis retailers, and assisting local governments to move licensees from provisional licensure to annual licenses.”
Governor Newsome also touted state created tax programs such as the High-Road Cannabis Tax Credit, Cannabis Equity Tax Credit, and the Cannabis Equity Retailer Vendor Compensation Program.
“Moving forward, the state will continue focusing on reforms that support and strengthen enforcement against the illegal market, and reinforce compliance, accountability, and stability within the legal market.”
Overall, it’s clear that the cannabis industry in California has faced numerous challenges and disparities since its legalization. Despite the industry’s struggle, the state did not offer assistance or support when needed. Now, with a budget deficit looming, the governor has turned to diverting funds from the very same industry to make up for overspending.
Governor Newsom’s proposal highlights the ongoing struggle for businesses in the cannabis market and raises questions about the state’s priorities and support for this industry.
However, with his budget plan also outlining efforts to improve and strengthen the legal cannabis market, there is hope for positive changes in the future. It remains to be seen how these initiatives will impact the industry and address issues such as high tax rates and regulatory hurdles.
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