Just like everywhere else in the world where recreational cannabis is being legalized, California also has a problem with deciding how to go about taxation.
Placing a high tax on recreational cannabis in California might very easily push the consumers back towards the black market again.
So far, it is certain that the consumers will pay a sales tax ranging from 22.25% to 24.25%, which includes the state excise tax of 15% and the additional state and local sales taxes which range from 7.25% to 9.25%.
Licensed producers and retailers will have a tax of their own as well, which will be different from the previously mentioned tax of 22.25% to 24.25%.
Cannabis growers and small businesses in California will have to pay a tax between 1% and 20% of their gross receipts, or $1 to $50 per square foot of marijuana plants depending on the nature of their business.
Additionally, farmers growing cannabis will be taxed $9.25 per ounce for flower and $2.75 per ounce for leaves they produce.
Cannabis black market in California is still huge
According to the Fitch Ratings cannabis report “High effective tax rates on California cannabis may complicate the state’s efforts to establish legal markets,” meaning that the black market is still very much able to compete.
“California’s black markets for cannabis were well established long before its voters legalized cannabis in November 2016 and are expected to dominate post-legalization production” — Fitch Ratings Report
Washington would still have a higher recreational cannabis tax, which is at 50% right now, and things seem to be working out for the Evergreen State.
Colorado and Nevada follow a 36% tax, while Oregon and Alaska have decided to completely lowball the market with a tax of 20%.
The state of Massachusetts is expected to have a tax rate of at least 24% when it starts up its retail market by July next year, while Main still hasn’t established a state tax.
Of the 8 states that have so far legalized recreational cannabis (including California), only 5 have functional retail markets so far, which leaves room for the black market to adapt.