Tuesday, December 5, 2023

Op-Ed: Fix California’s Cannabis Framework by Eliminating the Cultivation Tax


The following is an op-ed from CalMatters, a CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. MendoFever is honored to be an official partner of CalMatters and has been provided the opportunity to publish their important work.

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A cannabis farmer admires the developing flower on their sun-grown plant. [Photograph provided by Kure Mendocino]

It stinks to be in the cannabis industry in California right now.  

We aren’t just speaking metaphorically either. Four years after cannabis advocates and workers celebrated the opening of the largest legal recreational marijuana market in the world, misguided licensing and taxation policies have created an emporium of dysfunction. 

Today, hundreds of California cannabis farmers are choosing to let crops rot in the fields rather than risk a money-losing harvest or returning to the illicit market.

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Astonishingly, amid this crisis, California’s Department of Tax and Fee Administration recently announced yet another tax increase. On Jan. 1, 2022, the state’s cannabis cultivation tax will increase by almost 5%, raising it to a whopping $161 per pound.

Let’s compare how much higher the cultivation tax is for cannabis than, say, wine grapes, almonds or raisins. Actually, no such comparison is possible because no other agricultural product has a cultivation tax. On the contrary, other agricultural industries are supported by federal crop subsidies to protect family farms from market fluctuations that could put their homes and livelihoods at risk. 

The state cultivation tax is but one of many cannabis taxes imposed by state and local governments. The industry is also subject to local cultivation, manufacturing, processing, distribution and retail taxes, as well as local “road” taxes that are imposed merely for driving through a jurisdiction. Next a state excise tax is applied that’s approximately 27% of the wholesale price, and, lastly, a state sales and use tax. 

While the aggregation of these taxes contributes to the overall dysfunction, the cultivation tax is, by far, the most problematic. For starters, it is levied at the very beginning of the supply chain. So, every one of those later taxes also applies to the cultivation tax. In other words, our taxes are taxed again and again and again, compounding each time. 

To make matters even worse, the cultivation tax is a flat tax, meaning it’s not proportional to the sales price. Given the recent precipitous drop in the price per pound for cannabis, this matters. Last year, the cultivation tax was 10% to 20% of bulk material costs. Today it’s as high as 80%. Furthermore, it is applied essentially at the time of harvest regardless of whether materials are sold.

This is devastating for farmers, but they’re not the only ones who are hurting. Cannabis workers across the industry are impacted. Hundreds of jobs have been lost due to excessively high taxes and even more will disappear in the coming year as companies are forced to further cut costs, reduce operations or go out of business altogether.

Labor unions have fought for better wages, reasonable hours and safer working conditions for cannabis workers. Despite strong organizational success, there will be little unions can do to improve protections in this relatively young industry so long as it faces state-imposed financial hardships

And gradually ceding the industry to lavishly capitalized, out-of-state companies will mean that workers may never benefit from California’s strong labor policies, while cannabis workers, who are pushed back into the unregulated market will be even worse off. Working conditions in these illegal endeavors often resemble indentured servitude with dangerous conditions, low pay and no health benefits. 

By perpetuating tragically wrong-headed tax policies, the state’s inaction is costing jobs, strengthening an already dominant illicit market and all but ensuring that one of California’s great heritage industries will be non-competitive when federal legalization occurs.

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Fixing the problem is simple: Reform or repeal the state cannabis framework, beginning with the elimination of the cultivation tax. With the state projecting a whopping $31 billion surplus in 2022, it can well afford to forgo the cultivation tax to facilitate what should be a vibrant, global-leader industry. Until then, Sacramento’s misguided tax policy will continue to compound, hurting cannabis cultivators, consumers and workers alike.

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Tiffany Devitt is chief of Government Affairs at CannaCraft, a California cannabis company. 

Jim Araby is director of Strategic Campaigns for UFCW Local 5, a 30,000-member union in the Bay Area.

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  1. What this opinion piece appears to overlook is that, in fact, the market, legal or illegal, is flooded. When everyone heads to a gold rush, eventually, there’s only so much gold to be had. On the other hand, sure, remove the onerous state and local taxes on cannabis, because when government gets into the dope business they have the power to take as much as they want. This is California, others in various businesses have experienced this taxing and regulation oppression for decades, ever since California morphed into a one party state ruled by an oligarchy of the wealthy, progressive elites. Over the years, many of these non-cannabis businesses have been forced to leave the state. The future of marijuana in California is corporate, and profit will be made on volume. Look at Mendocino county, most of the old, so-called mom and pop growers are gone pushed out be the hoop-house crowd…who showed up ten minutes ago.

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Matt LaFever
Matt LaFeverhttps://mendofever.com/
I like to think of myself as a reporter for the Average Joe. Journalism has become a craft defined largely by city dwellers on America's coasts. It’s time to take it back. I have been an Emerald Triangle resident since 2006 and this is year ten in Mendocino County. Please, email me at matthewplafever@gmail.com if you know a story that needs to be told.

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