California Marijuana Taxes May Keep Black Market Competitive

California officials at the state and local level are eager to cash in on the potential $1 billion the cannabis industry is projected to sell by 2020. Sales taxes are being piled on at the state, county, and municipal levels causing some to fear that prices will keep the black market in California competitive.

Today a few grams of quality medical marijuana will cost about $35. But in 2018, when the new recreational market launches and additional taxes kick in, that same purchase is expected to rise to $50 or $60—about a 70% price increase.

Starting in January, pot prices will include a 15% state tax on purchases of all cannabis and cannabis products, including medical pot.

Leaves collected buds are trimmed are typically sold for use in making cannabis oil, which is used in edibles, vapes, etc. Growers currently sell a trash bag full of the leaves for about $50. Beginning in January, the state will add another $44 per pound to the price. The tax due on 7 or 8 pounds of trimmings will be 500% higher than it is now, making the byproduct essentially worthless since it will no longer be cost-effective to use them for extraction.

“It would become compost,” Ryan Jennemann told LA Daily News. His company, THC Design in Los Angeles, has been using the leaves to manufacture cannabis oils.

In Salinas, production tax will eventually rise to $25 a square foot for cultivation space—a whopping $1 million an acre. Meanwhile, in Humboldt County, rates will range from $1 to $3 a square foot. The difference is enough to drive growers to relocate into areas where production taxes are lower, leaving Salinas growers to deal with competition from illegal growers.

Currently there is no state tax on medical marijuana. That will go up to 5% in 2018. L.A. city sales tax is 6% at the counter. The city also piles on a business tax of another 10%. Plus buyers will have to pay the usual state and local sales taxes which add up to about 10% in L.A. All totalled, sales taxes will push retail prices to over $50 for an eighth-ounce which is in the same range as black market bud.

 

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