Five years into legal adult-use cannabis sales in California, and the industry is at “a breaking point.” Top cannabis industry insiders sounded the alarm as the industry teeters towards implosion amid impossible tax rates and other serious issues.
In a letter dated December 17, over two dozen cannabis executives warned California Governor Gavin Newsom, President pro Tempore Toni Atkins and Speaker Anthony Rendon that the state’s cannabis industry is on the verge of collapse.
According to the letter, only major tax cuts and a rapid increase of retail operations can save the industry. Two-thirds of California cities lack dispensaries, since local governments authorize sales and production.
California is set to raise the cannabis cultivation tax next month—despite the Legislative Analyst Office estimating that the state will have a budget surplus of $31 billion next year. On January 1, 2022, the California Department of Tax and Fee Administration (CDTFA) will raise the state’s cannabis cultivation tax for dry-weight flower by almost five percent, raising it to a whopping $161 per pound, and over $10 per ounce. It’s this tax that is exceptionally difficult for farmers who cannot even break even. This was the reason California NORML sent out a warning about the tax hike last month.
The letter provides a solution for some of the immediate problems. Specifically, the industry leaders asked for three things that need to change in order for California’s legal cannabis industry to survive: an immediate lifting of the cultivation tax, a three-year holiday from the excise tax and an expansion of retail shops throughout much of the state.
“It is critical to recognize that an unwillingness to effectively legislate, implement, and oversee a functional regulated cannabis industry has brought us to our knees,” the letter reads. “The California cannabis system is a nation-wide mockery; a public policy lesson in what not to do. Despite decades of persecution by the government, we have been willing and adaptable partners in the struggle to regulate cannabis. We have asked tirelessly for change, with countless appeals to lawmakers that have gone unheard. We have collectively reached a point of intolerable tension, and we will no longer support a system that perpetuates a failed and regressive War on Drugs.”
The current system “is rigged for all to fail,” they wrote.
High tax rates are pushing consumers back into the black market, where the tax-free cannabis is cheaper. “The opportunity to create a robust legal market has been squandered as a result of excessive taxation,” the letter said. “Seventy-five percent of cannabis in California is consumed in the illicit market and is untested and unsafe.” Some local governments took the issue into their own hands. San Francisco Board of Supervisors, for instance, unanimously approved a measure to temporarily suspend the city’s Cannabis Business Tax to fight illicit pot sales.
Once the higher cultivation tax rolls in, “most consumers are going to take off,” Darren Story of Strong Agronomy said during a conference call on December 17 with journalists and members of the media. Organizers are preparing for a January 2022 Boston Tea Party-inspired rally on the Capitol Steps in Sacramento to protest tax rates and other industry issues. “Forget the Boston Tea Party. Here comes the California Weed Tax Revolt,” read the headline of a The San Francisco Chronicle. The leaders represent nearly every sector of California’s cannabis industry.
The full list of industry leaders who signed the letter is listed below:
- Alec Dixon, Co-founder of SC Labs
- Amy Jenkins, President of Precision Advocacy
- Andrew DeAngelo, Co-founder of Harborside, California Cannabis Industry Association, Last Prisoner Project
- Conrad Gregory, President of CCIA Executive Board
- Dale Gieringer, California NORML Director
- Darren Story, Founder of Strong Agronomy
- David Hua, CEO and Founder of Meadow
- Dennis Hunter, Founder of CannaCraft
- Erich Pearson, Founder of SPARC farm and dispensaries
- Ingrid Tsong, Independent Farmer and Co-founder of Beija Flor Farms
- Jacob Heimark, CEO and Co-founder of Plus Products
- James Kim, CEO and Co-founder of STIIIZY
- Jamie Warm, Co-CEO of Henry’s Original
- Jeff Gray, CEO of SC Labs
- Jerred Kiloh, Owner of Higher Path dispensary and President of the United Cannabis Business Association trade group
- Jigar Patel, Co-CEO, NorCal Cannabis Company
- John De Friel, CEO and Co-founder of Raw Garden
- Joshua Keats, Founder and Co-CEO of Henry’s Original
- Karim Webb, CEO 4thMVMT
- Kristi Palmer, Co-founder of KIVA Confections
- Lindsay Robinson, Executive Director of California Cannabis Industry Association
- Michael Ray, Founder and CRO, Bloom Farms
- Michael Zumpano, CEO of Versagenix
- Flavia Cassani, Co-founder of Flow Cannabis Co.
- Mikey Steinmetz, Co-founder of Flow Cannabis Co.
- Nara Dahlbacka, Partner The Milo Group
- Ray Landgraf, Founder and CEO of Island Cannabis Co.
- Steve DeAngelo, Cannabis Rights Activist, Chairman Emeritus of Harborside Inc.
- Vince C. Ning, Founder and Co-CEO of Nabis
Newsom spokeswoman Erin Mellon responded to the letter, and said in a statement that the governor supports cannabis tax reform and recognizes the current problems, while expanding enforcement against illegal sales and production. “It’s clear that the current tax construct is presenting unintended but serious challenges. Any tax-reform effort in this space will require action from two-thirds of the Legislature and the Governor is open to working with them on a solution,” Mellon said.
The letter ensures that state leaders understand the sense of urgency and the scope of the problem. “The solution to these issues and the possibility of saving this industry lies in your hands,” they wrote in the letter.