California’s marijuana industry, valued at a hefty $4.6 billion, had some hope this week as Governor Gavin Newsom unveiled his latest budget proposal. For some in the sector, there’s a glimmer of optimism, especially with proposals that clamp down on illicit operators. However, many were left disappointed as the budget did little to address one of their most pressing concerns: the upcoming increase in marijuana excise taxes set for July 1.
With less than two months to go, the planned increase from 15% to 19% could further strain an industry already struggling with high operational costs and fierce competition from the unregulated market. Industry experts are concerned that the higher tax rate will drive more consumers to cheaper, illicit options, exacerbating the very issues lawmakers have been attempting to curb for years.
Excise Tax Increase Sparks Anxiety Across the Supply Chain
The looming tax hike is a bitter pill for marijuana operators in California, where the industry is still working to recover from initial legalization struggles. While some measures in the governor’s updated budget offer targeted relief, the overall lack of focus on the state’s tax policy is a glaring issue for many.
When lawmakers passed a recent law tweaking marijuana taxation, they reduced the cultivation tax but raised the excise tax, causing a lot of tension in the market. Retailers, already dealing with steep operating costs, are bracing for what could be another blow to their already razor-thin margins. But it’s not just retailers who are feeling the heat.
The new levy will have ripple effects throughout the entire supply chain. From growers to distributors, everyone stands to feel the squeeze. As costs rise, more consumers could look to the illicit market for cheaper alternatives. This, according to industry insiders, could undermine years of progress made in pushing the legal market forward.
California’s Marijuana Market Struggling to Stay Competitive
While the Golden State’s marijuana market has boomed since the legalization of recreational cannabis in 2018, it hasn’t been without its hiccups. California’s regulated market has long struggled with high taxes, complex regulations, and aggressive competition from illegal operators.
For many operators, the growing gap between the legal and illicit markets makes it difficult to compete on price. Marijuana products sold legally are often subject to a combination of state and local taxes, and the added excise tax could push prices even higher. Meanwhile, illegal operators face far fewer costs, enabling them to sell at much lower prices. The result? Consumers, especially those on tighter budgets, often turn to the black market.
The state’s budget proposal includes several measures aimed at curbing the illegal market, including tougher penalties for unlicensed growers and distributors. While such actions are applauded by some, they don’t address the core issue—rising taxes on legal marijuana that could push more consumers away from the regulated market.
What’s Next for California’s Cannabis Industry?
Industry advocates, alarmed by the impending tax increase, are urging lawmakers to reconsider. With inflation eating into consumer spending and the illicit market as a growing threat, raising taxes could further hinder the industry’s growth potential.
Lobbyists are scrambling to push for changes before the July deadline. Yet, with Governor Newsom eyeing a potential presidential run, many worry that his political ambitions could overshadow the needs of California’s marijuana businesses. There’s little indication that Newsom will intervene to prevent the tax hike.
Some industry experts argue that the marijuana sector deserves a bailout of sorts—relief from excessive taxation, lower operational costs, and a level playing field with illegal operators. However, with the governor’s latest budget proposals falling short, the industry is left holding its breath, hoping that lawmakers can act quickly to ease the burden.
Concerns About Future Growth
While the push for lower taxes is a constant refrain from industry leaders, there’s also growing concern about the future sustainability of the marijuana market. Over the years, there’s been an influx of new marijuana businesses, many of which were drawn by the promise of legal, profitable operations. Now, however, some are questioning whether the state’s marijuana policies are working against them.
Despite the legalisation of cannabis, California’s marijuana market remains a difficult environment for many businesses. The uncertainty around future tax changes and regulatory hurdles leaves many operators feeling uneasy. And while state actions like cracking down on illegal growers may seem like a good move, they may not be enough to keep legal cannabis afloat in the long term.