Debate over excise tax continues
But that looming tax increase is a major disappointment for many in the industry, who say taxes must be cut even further for legal cannabis to ever compete on price with the illicit market.
Coleman pointed to other major regulatory expenses for growers, including licensing fees and environmental compliance requirements. She also wants the state to play a larger role in opening up retail opportunities that remain prohibited in most jurisdictions in California.
“It’s not enough at all. And it’s just simple math,” she said. “Our position has always been: We need tax reform and.”
Jenkins, the industry lobbyist, said the three-year pause on the excise tax rate buys advocates more time to press their case.
Moving collection from distributors to the point of sale, where products can be taxed on the actual purchase price rather than an assumed 80% retail markup, will improve accuracy. Jenkins believes that tax revenues could actually rise as a result, giving the industry an argument against raising the excise tax and potentially even to lower it.
“We have three more years to fight that fight,” she said.
‘Crumbs’ for social equity licensees
Cannabis retailers, who did not receive a direct tax cut like growers, have expressed far more dissatisfaction with the deal. And advocates for social equity operators — who received their licenses through local programs intended to diversify the industry with more people of color, formerly incarcerated people and residents of neighborhoods with historically disproportionate cannabis arrest rates — have been particularly blistering in their criticism.
“What we’ve gotten are essentially crumbs from this bill,” said Amber Senter, executive director of the advocacy group Supernova Women, who organized several rallies at the state Capitol this year. “The cultivators will see relief, they will see a little bit more money in their pockets, and none of that is going to trickle down.”
The deal will allow equity licensees to get a $10,000 tax credit and keep a fifth of the excise tax revenue they collect for the next few years. But advocates had lobbied for more sweeping aid, such as a suspension of the excise tax altogether, to give their businesses a greater opportunity to establish a foothold.
Senter dismissed the tax credit as token assistance that would not even cover the cost of licensing fees. She also expressed concern about another provision that could have far greater significance in the long run: Starting in 2024, the plan lowers the threshold to 10 employees for businesses that must enter into labor peace agreements, thereby providing unions access to communicate with and attempt to organize their workers.
“Small businesses cannot be unionized,” Senter said. “This is going to crush small businesses.”
Some legislators want more action
As the bill came before the Legislature last week, several lawmakers spoke out on the floor against what they said was insufficient aid for cannabis retailers and equity operators, including state Sen. Steven Bradford, a Gardena Democrat who introduced legislation this session to reduce the excise tax. He called the provisions for equity operators “minimal and insulting” and was one of only a handful of legislators not to vote for the measure.
In an interview, Bradford expressed frustration that the cultivation tax was completely eliminated for growers, who are overwhelmingly white, while equity licensees received far less. He said he worried that plan would only deepen racial disparities in the industry, where Black and brown communities targeted during the war on drugs have struggled to thrive.
“That’s a hard pill to swallow,” he said. “At some point, when are we going to put the real weight and work behind what we all say exists?”
Bradford said he would continue to push to lower the excise tax for equity operators and other steps to move minority-owned businesses to the top of state efforts to bolster the legal cannabis market.
“Without a doubt, there needs to be more work,” he said. “If we fall short of that, we’ll come back next session.”
Elliott, the director of the Department of Cannabis Control, defended the tax restructuring deal as a collaboration between Newsom and legislative leaders to “simplify, simplify, simplify” the law for businesses across the industry.
“That reflects a willingness to be critical of the systems that are in place and trying to modify them,” she said.
No one can get everything they want in a compromise, Elliott said, but everyone is coming away from the deal with financial relief and regulatory improvements.
“They didn’t have any of this yesterday. So today is a better day,” she said.
