The State of California has been raking in millions of dollars in cannabis tax revenue since legalization. Still, a new report suggests that there’s a lot more money out there the state isn’t getting—around $250 million, actually. With added fees, that total could easily swell to $500 million, and California collections officers are ready to get their cash, even if it means going after bankrupt or closed businesses.
California’s Cannabis Tax Conundrum
As of December 2, the cannabis sector carried $250,410,890 in unpaid sales and cannabis taxes, according to data from the California Department of Tax and Fee Administration (CDTFA). This is out of an estimated $4.4 billion owed, which is under half of the $10.4 billion collected in tax revenue from cannabis sales as of the close of 2021. These numbers do not include medical marijuana sales or revenue.
In that time, the percentage of taxes collected has steadily declined, from 99.8% to 87.7% at the end of the third quarter this year—and it could easily double with penalties and interest. This presents a considerable threat to existing cannabis companies: If state cannabis tax revenues fall below a certain threshold, the industry may face an excise tax increase, raising the current rate of 15% to 19%.
Despite this, the CDTFA emphasizes that the agency isn’t trying to run companies into the ground and has even helped one company recuperate some of the money owed to them.
Where Does Responsibility Lie?
If you’re a former cannabis executive, you might be getting a visit from the California Department of Tax and Fee Administration soon.
The CDTFA is ramping up collections on back taxes owed by cannabis companies, and they’re going after executives who might not have thought they’d be held personally responsible for their company’s tax debt.
In fact, it happened to one company that went out of business earlier this year, and the former executive received a bill through an individual tax assessment for the $4 million in unpaid taxes left by their failed business.
The state has made it extremely difficult to run a business successfully, and now they’re going after people they pushed out of operation thanks to needlessly strict laws and regulations. It’s unclear if these ex-execs will be forced to pay these debts or if they can be deferred, but for now, all we know is the only people winning are the collections agencies.
Killing Cannabis In California
The legal system has been killing California’s historic cannabis industry.
Rapidly declining wholesale prices combined with hyper-taxation have farmers profiting less than ever from their harvests and consumers paying more than ever for products at retail dispensaries. On top of this, cannabis companies are often forced to pay hidden fees—like rent that’s 300% more costly than average—ON TOP of ridiculously high taxes to the state.
Cannabis companies aren’t even allowed to make money like other businesses. Stringent laws regarding licensing, zoning laws, and restrictions on delivery have seriously reduced the ability to profit from cannabis. This doesn’t even account for the financial barriers industry players face too, like crazy insurance premiums, high-interest rates, and barriers to financial support from institutions like banks and creditors.
These factors are obviously part of the reason cannabis businesses are behind on taxes, and the state is doing next to nothing to support the people making this multi-billion dollar industry exist—they’re just asking for more money.
California has wasted enough time and money trying to collect back taxes from cannabis operators. The state needs to focus on supporting the industry that they’ve already made successful instead of spending more money on a failing market.
California has collected over $10 billion in revenue in 2021 alone, making it one of the largest legal marijuana markets in the world and certainly the largest in America.
The state’s goal should be to continue to support this thriving industry instead of spending time and resources trying to get back money from operators who have paid their taxes and are doing their best to stay in business.
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