Bill Would Cut Taxes on Legal Cannabis to Combat Black Market

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SACRAMENTO — A proposed bill would slash taxes on legal cannabis in California in an effort to compete with the black market.

Assemblyman Rob Bonta, D-Oakland, is one of the state legislators introducing AB 286. If passed, it would temporarily cut the cannabis excise tax from 15 percent to 11 percent and suspend the cultivation tax altogether for the next three years.

“What we have heard in the industry is that these taxes are too high,” said State Treasurer Fiona Ma.

Right now, good actors complying with all state regulations pay upwards of 45 percent in taxes and legislators say they simply can’t compete with the black market.

“We don’t tax other startup businesses when they start. We really want them to get off the ground and hopefully be successful and then, maybe later we can assess taxes,” Ma said. “But this is the only industry where we are assessing high taxes at the front end, which is not a guarantee for success here.”

The high taxes are actually causing a $100 million shortfall in state tax revenues because some legal businesses simply can’t afford to pay.

“We’ve had over a year now of tax revenues coming in short and short again and short again of the adoption of the regulated marketplace not occurring as we hoped and expected and wanted,” Bonta said.

Lawmakers say AB 286 is the first step in making the legal industry competitive with California’s advanced black market, but they still have plenty of work to do to eradicate illegal marijuana operations completely.

“Just like prohibition, this is not, the Al Capones and the other people didn’t just stop overnight. We needed it to help prop up a lot of these businesses right after prohibition to make sure they could thrive and, ultimately, we need to suppress the black market until it completely goes away,” Assemblyman Reginald Jones-Sawyer, D-South Los Angeles, told FOX40.

Another issue legal cannabis businesses face is having to pay taxes in cash. Most banks refuse to worth with cannabis businesses because marijuana is still illegal under federal law, and banks are federally regulated.

Lawmakers say they are working on additional legislation to find a solution.

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