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Marijuana Mayhem: The Golden State Fails to Yield Gold
California’s Cannabis Industry is suffering in a big way. Businesses involved in the industry have been hemorrhaging money for the last year, to the point where far too many are now on the brink of closing.
Jerred Kiloh, who heads the United Cannabis Business Association, a Los Angeles-based trade group, notes that “No one is making money anywhere in the (legal) supply chain.”
A report from Whitney Economics showed what many cannabis business owners have been facing: a lack of profit. While some larger companies are thriving, many smaller businesses are struggling. The report surveyed almost 400 different cannabis businesses representatives in both established and emerging markets. All across the country, only:
When marijuana was first legalized, the hopes were that it would bring gold to the Golden state, and it has. The state has collected $3.12 billion in marijuana tax revenue in the three years since legal retail sales began. The state has enjoyed using this windfall, with tax revenue benefiting scores of people through state programs.
But people in the industry throughout the great state say things are at a breaking point for many of them, if not most of them. Crop yields aren’t selling for what they used to. Prices have been plummeting for the last year, with some crops going for as much as 70% less than previously. And while crops are selling for less and less, taxes are pushing higher and higher.
Without some relief soon, all of this will have a devastating effect on everyone in the state, through loss of jobs, loss of tax revenue, and all the dangers that come with a flourishing black market instead of a sustainable legal one.
Cannabis jobs have been growing fast, but they are at risk due to this crisis. Leafly’s 6th annual Cannabis Industry Jobs Report for 2021, which was created in partnership with Whitney Economics, found that the legal cannabis industry was responsible for an incredible 428,000 jobs last year. Leafly CEO Yoko Miyashita said “, the industry has created hundreds of thousands of new American jobs – and there are still plenty more yet to be created.”
Without some relief, however, companies will be forced to continue to cut costs, reduce operations, or go out of business altogether. This puts thousands of industry workers out of jobs. A loss of cannabis businesses also means a loss in tax revenue for the state.
Dr. Lynn Silver, the Oakland-based Public Health Institute program manager, says, “We need every cent of cannabis revenue .” California Cannabis Industry Association Executive Director Lindsay Robinson agreed, calling the funding youth organizations get as “extremely important” and adding, “We know how vital these funds are. But when the legal businesses fail, the funding will dry up,” she said.
Another downside that comes with failing to truly support the legal cannabis industry is that the black market sales increase. People will always find a way to get what they need. An unregulated black market not only doesn’t provide tax revenue for the state, but instead, it costs the state money as it deals with all the crime elements associated with an illegal black market. It’s better for everyone in the state if these sales take place legally.
At this time, though, with taxation being too high to sustain businesses and too few locations to sell products legally, estimates are that the black market sales are nearly twice those of legal sales. That’s a lot of tax loss for the state, a lot of illegal activity, and a lot of hard-working people behind that weed who would genuinely like to operate safely, legally, and sustainably.
So what’s the answer? In the simplest terms: lower the taxes and allow more dispensaries.
The current taxation system is clearly too high. There is no other business taxed as heavily, including alcohol. And it’s easy to see that too many companies cannot make it work. Only venture capital-backed companies can afford to operate at a loss, which even they will only be able to do for a limited amount of time. One concern by a small craft grower is that the large, multi-state, vertically integrated, mega-companies are going to be able to wait things out while smaller companies fall by the wayside. Once the vast majority of smaller cannabis companies are cleared out, the mega-companies will then pull their political strings to get taxes reduced, and then they will be able to reap all the profits. With the cannabis tax numbers being pulled in now, surpassing alcohol, it’s clear to see that cannabis lobbyists will soon be some of the biggest players in politics.
An interesting new study done by Reason Foundation, Good Farmers Great Neighbors, and Precision Advocacy shows that if California were to eliminate it’s cultivation tax, the state would actually bring in 123% more in other other cannabis related tax revenue.
How would eliminating cultivation tax bring in more state taxes? Well right now in California, legal cannabis taxes are as much as $90 per ounce. On top of the actual cost of the flower. This drives many people to purchase on the black market, as well as many vendors to opt to sell on the black market, to try to make ends meet. The study estimated that 2/3 of all cannabis purchases in California now are actually on the black market. The study found that if the cultivation tax were eliminated, that legal sales would more than double.
Geoffrey Lawrence, director of drug policy at Reason Foundation said, "High taxes are undermining California's legal cannabis market. Without the cultivation tax, our data show lower cannabis prices would increase sales of legal products, increasing the state government's general sales tax revenue and more than replacing losses from the eliminated cultivation tax."
The study also encourages enacting policies that could incentivize California's local municipalities to stop banning the sale of legal cannabis products, and allow for more retail locations.
As of January, there were 866 licensed dispensary locations in a state of nearly 40 million people! That’s a rate of 46,000 people for every brick-and-mortar dispensary. By comparison, Oregon has one legal retail store for every 6,000 residents, and Colorado has one legal retail store for every 13,000 residents. With at least 18% of the population saying they use cannabis regularly, that puts California’s 40 million people in a difficult position to buy legally. The people will always find a way to buy their weed, at affordable prices.
Opening more dispensaries now will allow more of the smaller vendors to get their products into legal storefronts, instead of the flourishing black market sales taking place now. More storefronts will keep things legal, safe, and regulated.
Localities that ban legal marijuana sales do nothing to limit residents’ access to cannabis. Instead, they are only limiting their access to legal sources.
In the relatively few localities that allow a regulated cannabis marketplace, sales transactions occur legally, regulated, and safely for all. Businesses have a location to sell their products. Consumers benefit by making purchases that are lab-tested for quality assurance and where they can feel safe thanks to security measures in place. And the state benefits by receiving more tax revenue (having the current black market turn legal would increase legal sales, which increases the overall tax revenue generated for the state).
CannaCraft (a large distributor/manufacturer) Chief of Government & Consumer Affairs, Tiffany Devitt, said, “We went from a market where the system made it so difficult for cultivators to join the legal market that we didn’t have enough supply and prices were extremely high through 2019 and 2020. Today, we have a lot more supply, but retail growth isn’t there because the majority of jurisdictions have banned retail.”
Devitt also points out that this problem compounds problems for the industry, saying, “More flower going into the same size market is driving prices down, and that’s devastating California’s cannabis industry.” (source Leafly)
Recently some senators and child advocacy groups have asked the governor not to lower taxes on cannabis. Their views do not consider the long-term effects it will have, though, on jobs, the black market, and even the tax revenue generated that they so desperately want to keep. After examining all the facts, they would see that more money would come to the state and these charities if more cannabis businesses could go legal.
And localities that choose to keep out the legal marijuana marketplace are fooling themselves if they think they are keeping marijuana out. It’s still there and thriving, just illegally. It’s time for more counties and cities across the state to realize that they all still have a cannabis market in their location, just not the kind that benefits them or their residents. It’s time for them to see that allowing legal sales will benefit municalities and their residents tremendously, and keep less unsavory illegal elements at bay.
Some politicians have begun to take notice of what is quickly becoming their largest cash cow: the cannabis industry, and noticing that they are struggling. The savy politicans realize that they will not be abel to rake in the tax dollars from failing businesses, so some have stepped up to help.
Senator Scott Wiener recently introduced Senate Bill 1186, which is intended to make sure medical marijuana patients are able to access the products they need. The bill requires municipalities to allow either medical marijuana dispensaries, or medical marijuana deliveries in their respective districts. They are allowed to choose which form they would prefer, but they must chose one. Senator Wiener focused his intent on patient access to dispensaries and said, “We must ensure that anyone who needs medical cannabis can access this very important and even life-saving medicine.” Cannabis advocacy groups, and cannabis growers, applaud this move and hope that the state Senate will pass the bill. It is now currently working it’s way through state senate committee groups.
California Governor Gavin Newsom recently tried to appease cultivators by presenting his proposal for an updated state budget, which, if passed, would eliminate the state’s cannabis excise tax for cultivation. The excise tax would still be there, though… just passed on to the distributors instead of cultivators. It would also revise where some of the cannabis taxes go within the state budget. Governor Newsom’s budget proposal still needs to pass the state legislature’s vote, with at least a two-thirds majority before it can be enacted into law. California’s Department of Cannabis Control’s director, Nicole Elliott, said that the new budget’s cannabis provisions would “remove unnecessary administrative burdens and costs.” It’s unclear how the excise tax shift would do that, though.
Now is the time for California to step up and truly help the Cannabis business so that it can help the whole state.
Seriously lowering taxes will allow more cannabis businesses to afford to keep their cannabis fully legal while still being able to sustain their operations. This would also keep and creates more legal, regulated jobs, which adds more money to the economy. Lower taxes would also encourage far more legal sales, which as the studies found, would generate more tax revenue overall. Finally, enabling more locations for dispensaries to operate legally will further allows cannabis suppliers a place where they can keep their sales in the legal market.
Let’s keep the gold in the golden state by supporting the Cannabis Industry.
/The M News Now
Jerred Kiloh, who heads the United Cannabis Business Association, a Los Angeles-based trade group, notes that “No one is making money anywhere in the (legal) supply chain.”
A report from Whitney Economics showed what many cannabis business owners have been facing: a lack of profit. While some larger companies are thriving, many smaller businesses are struggling. The report surveyed almost 400 different cannabis businesses representatives in both established and emerging markets. All across the country, only:
- 42% of respondents said that they are able to make a profit
- Another 20% said that they are just able to break even
- That leaves 38% of cannabis businesses who are operating at a deficit
- California has been the hardest hit, with only 26% of those respondents saying they were able to make a profit off operations
When marijuana was first legalized, the hopes were that it would bring gold to the Golden state, and it has. The state has collected $3.12 billion in marijuana tax revenue in the three years since legal retail sales began. The state has enjoyed using this windfall, with tax revenue benefiting scores of people through state programs.
But people in the industry throughout the great state say things are at a breaking point for many of them, if not most of them. Crop yields aren’t selling for what they used to. Prices have been plummeting for the last year, with some crops going for as much as 70% less than previously. And while crops are selling for less and less, taxes are pushing higher and higher.
Without some relief soon, all of this will have a devastating effect on everyone in the state, through loss of jobs, loss of tax revenue, and all the dangers that come with a flourishing black market instead of a sustainable legal one.
Cannabis jobs have been growing fast, but they are at risk due to this crisis. Leafly’s 6th annual Cannabis Industry Jobs Report for 2021, which was created in partnership with Whitney Economics, found that the legal cannabis industry was responsible for an incredible 428,000 jobs last year. Leafly CEO Yoko Miyashita said “, the industry has created hundreds of thousands of new American jobs – and there are still plenty more yet to be created.”
Without some relief, however, companies will be forced to continue to cut costs, reduce operations, or go out of business altogether. This puts thousands of industry workers out of jobs. A loss of cannabis businesses also means a loss in tax revenue for the state.
Dr. Lynn Silver, the Oakland-based Public Health Institute program manager, says, “We need every cent of cannabis revenue .” California Cannabis Industry Association Executive Director Lindsay Robinson agreed, calling the funding youth organizations get as “extremely important” and adding, “We know how vital these funds are. But when the legal businesses fail, the funding will dry up,” she said.
Another downside that comes with failing to truly support the legal cannabis industry is that the black market sales increase. People will always find a way to get what they need. An unregulated black market not only doesn’t provide tax revenue for the state, but instead, it costs the state money as it deals with all the crime elements associated with an illegal black market. It’s better for everyone in the state if these sales take place legally.
At this time, though, with taxation being too high to sustain businesses and too few locations to sell products legally, estimates are that the black market sales are nearly twice those of legal sales. That’s a lot of tax loss for the state, a lot of illegal activity, and a lot of hard-working people behind that weed who would genuinely like to operate safely, legally, and sustainably.
So what’s the answer? In the simplest terms: lower the taxes and allow more dispensaries.
The current taxation system is clearly too high. There is no other business taxed as heavily, including alcohol. And it’s easy to see that too many companies cannot make it work. Only venture capital-backed companies can afford to operate at a loss, which even they will only be able to do for a limited amount of time. One concern by a small craft grower is that the large, multi-state, vertically integrated, mega-companies are going to be able to wait things out while smaller companies fall by the wayside. Once the vast majority of smaller cannabis companies are cleared out, the mega-companies will then pull their political strings to get taxes reduced, and then they will be able to reap all the profits. With the cannabis tax numbers being pulled in now, surpassing alcohol, it’s clear to see that cannabis lobbyists will soon be some of the biggest players in politics.
An interesting new study done by Reason Foundation, Good Farmers Great Neighbors, and Precision Advocacy shows that if California were to eliminate it’s cultivation tax, the state would actually bring in 123% more in other other cannabis related tax revenue.
How would eliminating cultivation tax bring in more state taxes? Well right now in California, legal cannabis taxes are as much as $90 per ounce. On top of the actual cost of the flower. This drives many people to purchase on the black market, as well as many vendors to opt to sell on the black market, to try to make ends meet. The study estimated that 2/3 of all cannabis purchases in California now are actually on the black market. The study found that if the cultivation tax were eliminated, that legal sales would more than double.
Geoffrey Lawrence, director of drug policy at Reason Foundation said, "High taxes are undermining California's legal cannabis market. Without the cultivation tax, our data show lower cannabis prices would increase sales of legal products, increasing the state government's general sales tax revenue and more than replacing losses from the eliminated cultivation tax."
The study also encourages enacting policies that could incentivize California's local municipalities to stop banning the sale of legal cannabis products, and allow for more retail locations.
As of January, there were 866 licensed dispensary locations in a state of nearly 40 million people! That’s a rate of 46,000 people for every brick-and-mortar dispensary. By comparison, Oregon has one legal retail store for every 6,000 residents, and Colorado has one legal retail store for every 13,000 residents. With at least 18% of the population saying they use cannabis regularly, that puts California’s 40 million people in a difficult position to buy legally. The people will always find a way to buy their weed, at affordable prices.
Opening more dispensaries now will allow more of the smaller vendors to get their products into legal storefronts, instead of the flourishing black market sales taking place now. More storefronts will keep things legal, safe, and regulated.
Localities that ban legal marijuana sales do nothing to limit residents’ access to cannabis. Instead, they are only limiting their access to legal sources.
In the relatively few localities that allow a regulated cannabis marketplace, sales transactions occur legally, regulated, and safely for all. Businesses have a location to sell their products. Consumers benefit by making purchases that are lab-tested for quality assurance and where they can feel safe thanks to security measures in place. And the state benefits by receiving more tax revenue (having the current black market turn legal would increase legal sales, which increases the overall tax revenue generated for the state).
CannaCraft (a large distributor/manufacturer) Chief of Government & Consumer Affairs, Tiffany Devitt, said, “We went from a market where the system made it so difficult for cultivators to join the legal market that we didn’t have enough supply and prices were extremely high through 2019 and 2020. Today, we have a lot more supply, but retail growth isn’t there because the majority of jurisdictions have banned retail.”
Devitt also points out that this problem compounds problems for the industry, saying, “More flower going into the same size market is driving prices down, and that’s devastating California’s cannabis industry.” (source Leafly)
Recently some senators and child advocacy groups have asked the governor not to lower taxes on cannabis. Their views do not consider the long-term effects it will have, though, on jobs, the black market, and even the tax revenue generated that they so desperately want to keep. After examining all the facts, they would see that more money would come to the state and these charities if more cannabis businesses could go legal.
And localities that choose to keep out the legal marijuana marketplace are fooling themselves if they think they are keeping marijuana out. It’s still there and thriving, just illegally. It’s time for more counties and cities across the state to realize that they all still have a cannabis market in their location, just not the kind that benefits them or their residents. It’s time for them to see that allowing legal sales will benefit municalities and their residents tremendously, and keep less unsavory illegal elements at bay.
Some politicians have begun to take notice of what is quickly becoming their largest cash cow: the cannabis industry, and noticing that they are struggling. The savy politicans realize that they will not be abel to rake in the tax dollars from failing businesses, so some have stepped up to help.
Senator Scott Wiener recently introduced Senate Bill 1186, which is intended to make sure medical marijuana patients are able to access the products they need. The bill requires municipalities to allow either medical marijuana dispensaries, or medical marijuana deliveries in their respective districts. They are allowed to choose which form they would prefer, but they must chose one. Senator Wiener focused his intent on patient access to dispensaries and said, “We must ensure that anyone who needs medical cannabis can access this very important and even life-saving medicine.” Cannabis advocacy groups, and cannabis growers, applaud this move and hope that the state Senate will pass the bill. It is now currently working it’s way through state senate committee groups.
California Governor Gavin Newsom recently tried to appease cultivators by presenting his proposal for an updated state budget, which, if passed, would eliminate the state’s cannabis excise tax for cultivation. The excise tax would still be there, though… just passed on to the distributors instead of cultivators. It would also revise where some of the cannabis taxes go within the state budget. Governor Newsom’s budget proposal still needs to pass the state legislature’s vote, with at least a two-thirds majority before it can be enacted into law. California’s Department of Cannabis Control’s director, Nicole Elliott, said that the new budget’s cannabis provisions would “remove unnecessary administrative burdens and costs.” It’s unclear how the excise tax shift would do that, though.
Now is the time for California to step up and truly help the Cannabis business so that it can help the whole state.
Seriously lowering taxes will allow more cannabis businesses to afford to keep their cannabis fully legal while still being able to sustain their operations. This would also keep and creates more legal, regulated jobs, which adds more money to the economy. Lower taxes would also encourage far more legal sales, which as the studies found, would generate more tax revenue overall. Finally, enabling more locations for dispensaries to operate legally will further allows cannabis suppliers a place where they can keep their sales in the legal market.
Let’s keep the gold in the golden state by supporting the Cannabis Industry.
/The M News Now