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California Budget Eliminates Cannabis Cultivation Tax

July 5, 2022

An addition to California’s state budget proposal is set to kill the tax imposed on cannabis cultivators while maintaining the excise tax at its present 15% level. The news is the culmination of more than six months of intense agitation on the issue following years of dissatisfaction within the industry. Last December numerous high-profile members of California’s cannabis industry sent a letter to governor Gavin Newsom, writing in part, “Our industry is collapsing… An unwillingness to effectively legislate, implement, and oversee a functional regulated cannabis industry has brought us to our knees.” In May, Newsom proposed eliminating the cultivation tax.

California is somewhat unique in that it has to this point taxed cannabis in two ways, both with weight-based fees on cannabis paid by growers and with an excise tax at the point of sale. Most states only levy an excise tax, though the percent varies considerably across markets. Under the new budget, the 15% excise tax will be maintained for three years, at which point lawmakers can revisit it, either to raise or lower it. Additionally, the budget sets a lower excise rate of 12% for social equity cannabis companies, along with giving them a $10,000 tax credit.—Danny Sullivan

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