After avoiding enhancement in state level taxes on legal marijuana the officials of California have suddenly changed course and announced that excise taxes and taxes on cultivation of marijuana will increase from January 1, 2020. The high taxes on both state and local level have been a continuous problem for the industry making it difficult for legal businesses to compete with illicit producers that lure customers with low prices as unlicensed retailers don’t pay taxes.
While announcing this move the CDTFA stated that it must recalculate wholesale markup rate of cannabis every 6 months and revealed that mark-up rate for excise tax of marijuana will go up from existing 60 %level to 80 %slab starting from New Year of 2020. The mark-up rate provides basis for 15 % excise rate in the state of California. The enhancement will also push up the cultivation tax in the state for lead to increase in state cultivation tax for adjustment against inflation.
While price of one ounce of flower will increase by 4.3 %, and one ounce of leaves will increase by 4.3 % the price of one ounce of fresh marijuana plant based material will increase by 4.6 %. The markup of CDTFA is based on wholesale average price of cannabis though the agency had in the past declined to increase tax rate of marijuana at state level. The agency statement stated that markup rate change is based on market data.
CDTFA spokesman Casey Wells stated that purpose of this markup was to ensure that actual tax should match 15 % of gross receipts rate that is approved by voters. When asked if excise markup rate will change after six months Casey stated that it will depend on data of wholesale market. But as cultivation tax is based on inflation it will be adjusted once every year. The move has been criticized by industry insiders and also democrat Rob Bonta from Oakland who tried twice without success to lower marijuana taxes through legislature.