Monday, October 30, 2017

California could kill its golden 'pot' goose before it begins by driving industry back into shadows with too high of taxes

Colorado, Washington, and now Nevada have proven in a short period of time that the legalization of marijuana for both medical and recreational use has proven to be a boon for state and municipal coffers desperate for new sources of revenues.  And even more, the amount of crime affiliated with the drug in the past has gone down with its supply being readily available for consumers in these states.

Yet as the state of California prepares to introduce its recreational pot standards in January of next year, early indications show that that the combined tax rates from the state, county, and municipalities could actually drive marijuana back into the shadows as the government might just kill its golden 'pot' goose before it begins by overtaxing the industry into oblivion.

High taxes on legal marijuana in California could have the potential to turn many consumers away from the state’s cannabis shops and toward the black market, according to a report from Fitch Ratings. 
The credit rating agency estimates state and local taxes on marijuana, which will become legal in California on Jan. 1., could be as high as 45 percent in some cases. It would trail only Washington state, which levies a 50 percent tax on marijuana. 
“The existing black market for cannabis may prove a formidable competitor to legal markets if new taxes lead to higher prices than available from illicit sources,” the report says. 
Recreational marijuana will be taxed on both the state and local level, contributing to the potential for high rates. California will impose a 15 percent excise tax, as well as cultivation taxes. Municipalities will also levy sales tax and a business tax, which could be anywhere from 1 to 20 percent, on gross receipts.  Business taxes on recreational marijuana have been approved by voters in 61 California cities and counties, according to the report. 
These high tax rates have the potential to drive customers toward the black market. The state is the nation’s epicenter of marijuana growing and has long provided black market pot. The report states that Colorado, Oregon and Washington all reduced tax rates after the commencement of legalization to shift customers back toward the legal market. – Washington Post

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