Analysis: Reduced Taxes, Fewer Regulatory Burdens Would Promote Better Growth in California’s Licensed Cannabis Market

Los Angeles, CA: Regulatory costs, high taxes, and municipal bans on cannabis retailers have significantly inhibited the growth of the licensed marijuana marketplace in California, according to a report issued by the Reason Foundation. 

The analysis estimated that California imposes an effective tax rate of as much as $92 per ounce. This amount is higher than the tax burden imposed on retail cannabis transactions in other states.

The report’s author also highlighted that California has a “paucity of legal retailers” as compared to other adult-use states. This is because the majority of localities in California prohibit such establishments. While Colorado has “one legal retailer per 13,838 residents” and “Oregon boasts one retailer per 6,145 residents,” California has “one legal retailer per 29,282 residents, indicating a dramatic undersupply of legal retailers in the Golden State.”

California NORML Director Dale Gieringer, who authored the report’s foreword wrote: “California’s legal industry has been hard pressed to compete with untaxed, unregulated providers on the underground market. So dire is the current situation that advocates now fear that the cannabis industry in California faces an ‘existential crisis’ in the absence of meaningful tax reform.”

He concluded, “Substantive tax cuts therefore seem to be a feasible strategy for reducing demand for the illicit market, while still retaining reasonable revenues for the state programs funded in Prop. 64.”

Following the report’s release, Democratic Gov. Gavin Newsom proposed eliminating the marijuana cultivation tax. Doing so requires support from two-thirds of the state legislature.

Full text of the report, “The Impact of California Cannabis Taxes on Participation Within the Legal Market,” is available from the Reason Foundation.