Marijuana Business

The Marijuana Black Market Will Keep Its Throne in California, Thanks to Tax Increases

When the government tries to hoover up all the money earned from legalized drugs, this is what happens.

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You know what the legal marijuana industry in California doesn't need? Higher prices. But even though black market pot sales already outnumber legal purchases by nearly a three-to-one margin, a state agency is jacking up its taxes on marijuana. The new rates are scheduled to start with the new year.

Marijuana taxes will be increasing in two ways. The first involves the state's 15 percent excise tax, which is calculated based on how much marijuana vendors mark up the price of retail sales to cover their costs and make a profit. The California Department of Tax and Fee Administration (CDTFA) researched average marijuana retail prices across the state, and it determined that sales have been marked up 80 percent from wholesale costs. This is an increase from the previous mark-up calculations of 60 percent. So the state will be demanding a larger chunk of money from every retail marijuana sale.

The second increase is an inflation adjustment for cultivation taxes. The tax on dry leaves, for example, will increase from $2.75 to $2.87 per ounce.

Neither of these tax increases is subject to a vote from lawmakers. The inflation adjustment was baked into the legislation passed in 2017. Indeed, all of these relatively inflexible guidelines were built into a law that tried to guarantee that state and local governments would get lots of revenue out of a new legal industry.

Meanwhile experts estimate that black market marijuana vendors will bring in $8.7 billion in revenue in 2019, compared to $3 billion from legal sales. The state has had to adjust revenue projections downward because it failed to predict how the high costs it was imposing would keep consumers away from legal weed.

Marijuana Business Daily reports that members of the industry

immediately criticized the move, as did Oakland Democrat Rob Bonta, a state assembly member who has twice tried—but failed—to lower MJ taxes through the legislature.

In an emailed statement, Bonta called the tax hike "deeply concerning."

"This short-sighted move ignores the realities that licensed businesses are at the breaking point, with many struggling to survive," Bonta wrote, and reiterated his support for at least temporarily lowering state cannabis taxes.

The California Cannabis Industry Association (CCIA) said the increase left its members "stunned and outraged."

"As California's regulated market spirals towards collapse from taxes on cannabis consumers…we believe that the CDTFA's decision to increase tax burdens on compliant cannabis operators is counter to developing a safe industry," according to the association's statement.

Earlier in the month, 60 Minutes reported how the absurdly high costs of trying to legally grow weed in marijuana has fostered a black market and ensured that many legal vendors cannot make a profit. The state's response, from Gov. Gavin Newsom and Attorney General Xavier Becerra (both Democrats), has been to launch a new drug war to try to crack down on the black market. It is not unlike Newsom's apparent bafflement that increasing gas taxes in California caused the price of gasoline to rise.

The new taxes will be yet another kick in the teeth of anybody trying to legally sell or buy marijuana in California. A spokesperson from Newsom's office responded to Marijuana Business Daily with a bland claim that they want to "simplify compliance for everyone involved and support a healthy legal market." But the policies the administration is enforcing do the exact opposite of that.

NEXT: Oregon Cops Are No Longer Allowed To Routinely Turn Traffic Stops Into Criminal Investigations

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  1. That and Marijuana is NOT legal in Commifornia.

    It was de-regulated and the regulations it still has are oppressive for the market, so they have a Black Market.

    1. You like to prattle about “shall not be infringed” and all gun control laws are unconstitutional.

      You also like to say the war on drugs is illegal.

      Why do you also like to say marijuana is not legal?

    2. Poor Alphabet troll does not know what “de-regulated” means.

      1. Poor new troll Vandikar.

        His programmer never learned what “legal” means.

    3. How can something be deregulated and yet have regulations?

  2. Hey, I can’t breathe. Can you?

  3. The State saw money lying around. They took it.
    What’s new about that?

  4. Couldn’t be any dumber if they tried.

    1. Hold my beer.

      /CA

      1. In the entire history of the known universe, nothing that started with “Here, hold my beer” has ended well.

        I think the California state legislature starts all sessions by invoking “Here, hold my beer.”.

        1. As someone whose played with fireworks/minor explosives while drinking numerous times unscathed, I couldn’t disagree more.

  5. Stoners need to pay their fair share, Shackleford.

    1. True enough. But WHY is the “fair share” on marijuana so vastly greater than the “fair share” on alfalfa, spinach, alfalfa sprouts, or sweet potatoes?
      A tax of above two bucks PER OUNCE on cannabis dry leaf is “fair”, when oolong tea only gets taxed the usual sales tax rate like everything else? Got it.

      This whole thing of “legalising’ marijuana was set up to fail right out of the gate, and it already IS failing, massively. Then the black market is near four times the gummit approved scam, whaddya speck?

  6. This is no surprise to anyone with their eyes open. This is a Democrat controlled state and they did not decriminalize marijuana because they suddenly turned libertarians and were concerned for individual rights. The only reason they decriminalized marijuana is because they thought they could tax the shit out it.

    I know progressives in this state who where adamantly opposed to decriminalization until they realized it could potentially be a tax source. Then they turned around. I talked to one progressive friend and suggested it should be taxed at the same rate as alcohol. No more no less. He was aghast at the suggestion. Limit taxation? Preposterous!

    Everything about progressives in California is about taxing shit to pay for their schemes. They don’t care about the moral issues because they are white, and whites don’t got to jail for pot, only blacks and latinos do. To white progressives in California, marijuana has always been essentially legal. I know a friend who got caught with a garage full of plants and the full grow operation. He spend two hours in front of a court. Still progressive, still thinks libertarians are nuts to be going on about individual rights.

    Welcome to California.

    1. I might even argue less, if they want to incentivize people buying it and paying taxes, as it’s easier to grow your own weed than it is to brew beer.

      This was the first year for recreational in Michigan, and I grew some in big pots on my deck, yet even though I’m a craft beer nerd I’ve never gone through with brewing my own. Granted I live in the woods and no one can see my deck, so it was a little easier for me than most as far as setting it up, but still a simpler process.

    2. I think you’re right. It’ll do no good to complain about this state of affairs, because the only way there’d be legal weed was going to be, and will be, for the state to skim off most of it. Be glad that as a byproduct, enforcement against the black market has become harder, as distinguishing between legal and illegal product is so difficult.

    3. I keep telling you all: when they referred to pot legalization as “tax and regulate,” do you think they were kidding?

  7. It’s California.

    The high cost of living ain’t nothing like the cost of living high.

  8. The weed is too damn high!

  9. they want to “simplify compliance for everyone involved”

    And who could *possibly* be against “simplified compliance”?

  10. I only caught part of the news but I though they said the yearly license alone was $26k which is outrageous

  11. While it’s true that California has some of the worse roads, some of the worse schools in the nation and the worse homeless problem at least we have some of the highest taxes in the nation. There’s always a bright side.

  12. It’s illustrative that a gov’t can, with the sweep of a pen, eliminate a black market. However, with that same sweep ensure that it continues, because it doesn’t understand that free thinking homo sapiens by their evolved nature or by the will of their creator, are frugal, and will get what they want or need in the the most efficient way possible… hmmm

    1. They unddrstand. They just want to see how much squeeze they can get.

  13. I was against Prop 64 because it didnt allow for legalization of personal grows outright, and permitted hick counties to ban sales etc (among other reasons). I’m glad to see so many of the retail producers and outlets etc choking and dying on the regulation they wanted to have so as to stomp out personal grows.

    Everyone will throw up their hands on this crap shortly and then we WILL get the legalization that Prop 64 undermined thanks to that asshat, Sean Parker.

  14. The state has had to adjust revenue projections downward because it failed to predict how the high costs it was imposing would keep consumers away from legal weed.

    dummies never studied Economics. Else they’d have learned about Laffer’s Curve.

    Tax an item, you get some revenue. Raise the tax a bit you will get MORE revenue. Raise it some more, you’ll get a little more revenue. Raise it yet again, revenue remains static. Kick it up even further, guess what? Total revenue now will be falling. Raise it once more to cure the sortfall, and revenue drops WAY off.
    WHY? That is perfectly obsreved and detailed in this article. When tax rates rise to the point of pain to the consumer (taxes ALWAYS devolve to the consumer) the consumer will ALWAYS move to reduce pain. by either finding alternatives to the product, or using less, buying it free of the tax increase.
    They’ve so overburdened the stuff folks are in rebellion and simply not using the stuff, or figuring out how to compensate

    And they COULD have had massive increased revenue by increasing new sales but they got greedy and got less.

    Reminds me of a Certain CIty in Washington State which, for reasons not to be addressed here, decided to impose a signficant tax on firearms and a separate one on ammunition. It applied ONLY within the limits of that city. TWO large gun stores shifted to just across the city line. so not only did Seattle NOT get the projected revnue directly from the guns/ammo tax, those businessed removed the sales of all non-firearm items as well so no sales tx on THAT revenue, nor on the Business and Occupations tax which comes from the total gross volume and goes to the city where the sale took place.
    So Seattle instead of getting some five million in new gun/ammo taxes ended up netting under $100K, and no one has had the courage to check and see what the sales and B&O taxes USED to be from those stored…… and subtract THAT from the gun tax actually generated.

    Oh, and anyone living in Seattle is faster than calling a cop in drive time to get to a large independent well stocked nd friendly gun store.

  15. LOL..The gang bangers of the Ca legislature have managed to take what could be a profitable product and turn this enterprise into a greed grab by literally squashing the industry incentive with over taxation and regulation, thus giving the cartels a reason to continue to be the black market go to…. ..this is typical of the Ca governance and the elected legislative clowns that think they are anointed…there is just not enough money to make these blood suckers happy, so why doe the dimwits of Ca keep putting this kind in office????

  16. How to make a black market for legal things.
    1. Tax the ever living FUCK out of it.
    2. Raise tax even higher.
    3. Regulate so costly that the legal side price can’t compete.

    These morons still don’t get it, cannabis is a plant anyone can grow and the ONLY reason it was so expensive before legalization was due to the whole GO TO JAIL part of growing selling. NOT because it was truly worth that much. It’s a fucking plant you government morons!

    Reminds me of cigarettes and how organized crime got into the game in states that raised taxes to much on them it was suddenly profitable to the mob etc to start jacking truck loads of cigs to sell where? On the black market created by the very taxes levied on them. Congrats government you could fuck up a wet dream and tax it too I am sure!

  17. I wish the government would have better control and regulation on people operating and selling marijuana in whatever might the industry. They should be properly monitored and registered in the government reports.

    Heck Oh Yeah

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