How Passing Prop 64 Would Affect Marijuana Taxes in California


If California voters back Proposition 64 to legalize marijuana in November, the state will have the lowest statewide excise taxes on weed in the country.

Aside from the obvious response—cheaper legal weed!—this is an important development that shows California policymakers have learned from the mistakes made in some other states that went down the legalize-and-tax-it route in recent years. Lawmakers in Colorado, Washington and Oregon have already considered reductions to their states' marijuana taxes after finding that high tax rates—each of those states have rates of at least 30 percent for recreational marijuana—did not shut down black markets for weed.

California has a robust black market for marijuana, of course. With that in mind, Proposition 64 contains a more modest 15 percent excise tax on recreational marijuana and would do away with the existing use taxes on medical marijuana. There would be no tax on marijuana grown for personal consumption but a per-ounce cultivation tax applies to buds and leaves sold by growers to distributors.

Even with a lower rate—or perhaps because of it, depending on how the Laffer curve applies to marijuana—California could be looking at more than $1 billion in weed-related revenue within a few years after legalization, the Los Angeles Times reported this week. That's more than six times the amount that Colorado collected in 2015, a sign of just how large the marijuana market in California could be.

Here's how the statewide taxes break down, courtesy of a new report from CalCann Holdings LLC, which helps marijuana-related businesses navigate California's legal and regulatory framework:

But the state excise tax is only one part of the story, as the CalCann Holdings report details. Cities across California already have a myriad of taxes on medical marijuana and a similar patchwork of local taxes for recreational weed could be possible if Prop 64 passes.

There are essentially three types of cities looking to tax marijuana, according to the analysts at CalCann. Progressive cities likely to welcome the marijuana industry will set low rates, like the 2.5 percent tax rate on medical marijuana currently found in Berkeley and Stockton.

Other governments less welcoming to the end of marijuana prohibition might be inclined to pile on the taxes in the hope of keeping marijuana businesses out of the area—effectively outlawing legal marijuana and letting the black market continue to operate (it should be noted that Prop 64 also allows local governments to outlaw weed even if it is legalized statewide).

The third group is probably the most interesting—and potentially the most worrisome. CalCann Holdings says deeply indebted cities could welcome marijuana-related businesses as sources of much-needed tax revenue.

But high local taxes could offset the benefits of California's comparatively low statewide tax rate, something that is already worrying supporters of Prop 64.

"If we're getting up to 30, 35 percent tax, yeah that's when people are going to stay in the illicit underground market," says Lynne Lyman, California state director for the Drug Policy Alliance, who discussed the taxation issue in a wide-ranging interview with Reason TV earlier this week. She says the message advocates are sending to local govenrments is "we know you need money for everything. Don't go crazy. Start low."

Assuming, as all this does, that Proposition 64 is approved in November, that's good advice for cities in California to follow. On top of concerns about keeping some or all of the marijuana market in the shadows, high taxes will limit the potential economic growth from new investment in the cannibis industry–bringing growth and jobs that California sorely needs.

NEXT: DEA Concession Means Marijuana Could Be Approved As a Medicine

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  1. California could be looking at more than $1 billion in weed-related revenue within a few years after legalization

    That’s great. That will mean more money to build reservoirs and desalinization plants super-fast choo-choos to nowhere.

  2. This is horrible. We should definitely keep weed illegal so we can keep killing people, imprisoning people and otherwise ruining people’s lives over it rather than accept that it will be taxed like every other product under the sun.

    1. I, for one, can’t wait to see the sensitive, thoughtful way that various states handle the realization that it’s difficult to tax a thing that some not-very-smart dudes i knew could grow in their bathroom.

      1. Home cultivation will be the thing that won’t last. They’ll be some sort of grow light/house fire that kills some kids and the helicopters with infrared cameras will fly again.

      2. Making beer is at least as easy as growing weed and is legal now. But most people don’t and are happy to pay the tax on it. And liquor taxes are pretty damn high.

        At least in states that allow easy retail sales, I think they will do pretty well on tax collecting. Though I do get sick of hearing “tax it” as an argument for legalization.

        1. If you can grow it outdoors without fear of being busted, weed is way easier to grow than brewing beer.

          If you’re trying for super high potency strains, then sure, that’s harder.

          1. I think it’s more of an effortVSoutput issue. Yeah, you can make your own beer. It only takes a couple hours of work and days (weeks?) of waiting to make how many servings? Enough for one person for the weekend?

            Then division of labor comes into play: my time is worth more than quality beer costs.

          2. Yeah, I grew my own plant a few years ago… Then I had some good professional stuff. No comparison. Even paying $40 an eighth plus taxes is worth it for the quality that I’m pretty sure I’m not going to be able to get without serious growing equipment, know-how, and time. Not to mention I’d rather have a variety of strains instead of being stuck with a couple ounces of the same.

            1. If you try and buy it in a state where it’s highly illegal, then the cost might be way more than $40 an eighth. But, in WA $15 a gram can get you some super high potency stuff, so that the cost per high might be a couple of bucks. Totally worth leaving it to professionals for that price.

  3. “…that’s one of the reasons it was so important to protect kids from the criminal justice system with this initiative.”


  4. Taxes so high it stays black market. Brilliant.

  5. $2.75 per ounce of dried marijuana leaves? Is anybody smoking leaves?!? What gives?

  6. Lawmakers in Colorado, Washington and Oregon have already considered reductions to their states’ marijuana taxes after finding that high tax rates?each of those states have rates of at least 30 percent for recreational marijuana

    The weed tax surcharge in Colorado is 15%. And the place I went to waived it for a cash purchase. I’m guessing the state didn’t get their cut on * that * purchase.

    Even with ordinary sales taxes piled on, how do you figure 30%+ taxes in CO?

    1. Even a $9 an ounce tax on flowers isn’t much as a percentage when the cheapest strains are $10 a gram, and the higher potency stuff is $15 a gram.

  7. I won’t vote to legalize it because of the tax. I’m all for keeping it “illegal” and tax free.

  8. He has the exact same voice as Nathan Fielder.

  9. Taxes will have to be raised almost immediately…….for the children.

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