California Bill Proposes $900 Million Tax Loss to Curb Black Market Cannabis Sales

The California Assembly proposed a bill is focused on reducing black market cannabis sales by temporarily reducing the excise tax from 15% to 11% until 2022. The Assembly Committee on Appropriates will hold a public hearing on the bill tomorrow, May 1, 2019. The Assembly Appropriations analysis report shows that the bill would result in a $900 million tax loss for California between 2019-2022. This loss would be in addition to the lower than expected tax revenues produced by the cannabis industry in fiscal year 2018-2019 ($270 million versus projected $350 million).

The report indicates that other factors allow the black market to offer competitive pricing including local taxes, licensing and compliance requirements including testing, and banking restrictions. The committee may decide to take a longer term wait and see approach before slashing tax revenues. Finally, the staff notes that, even if the state does lower the excise tax, local municipalities can fill that void by increasing local tax rates.