Although taxes continue to make it difficult for cannabis businesses in California to compete with the illegal market, excise and cultivation taxes were increased at the beginning of this year. As a part of their obligation to recalculate the wholesale cannabis markup rate every six months, the California Department of Tax and Fee Administration increased these taxes from 60% to 80%.
Furthermore, this raised the state cultivation tax to adjust for inflation, increasing those taxes as well:
The markup rate was based on the wholesale average market price of cannabis. In the past, the agency had declined to increase the state cannabis tax, but that wasn’t the case leading into 2020.
“The purpose of the markup is to have the actual tax match the 15% gross receipts rate approved by voters,” said CDTFA spokesperson Casey Wells to Marijuana Business Daily, before the raise. “After analyzing thousands of transactions in the state’s Track and Trace system, CDTFA analysts have determined that the required markup rate for the period beginning January 1, 2020, is 80%.”
As per the six-month window, the rate could change again this summer – but that will depend on the wholesale market data examined by the CDTFA. The agency insists this is not discretionary action in any sense, but rather, simply a reflection of the laws established by the legislature in 2017.
That said, many industry members criticized the move, in light of how difficult operation continues to be for new cannabis businesses. Oakland Democrat Rob Bonta, who is known for attempting to lower cannabis taxes, described the increase as “deeply concerning.”
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