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Adult-Use Cannabis Businesses Seek Tax Relief

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The California cannabis market is beginning to mature. As the most populous state in the US, California has earned over $1 billion in cannabis tax revenue over the past 2 years. In fact, California earned $629 million in 2019 alone—accounting for a third of the total cannabis tax revenue collected in the US. 

But as demand and industry growth stabilizes, cannabis entrepreneurs are calling for sweeping changes to legislation, particularly for cannabis tax reform. 

High taxes aren’t just plaguing California. In January of 2020, Illinois earned $10.5 million in tax revenue from cannabis. The state earned this by:

25% or 30% tax rates aren’t unheard-of in the cannabis industry. Unfortunately, because of these high tax rates, cannabis businesses have to increase their prices, which severely limits their opportunity for growth. 

In fact, Californians are turning to the black market for cheaper prices. Rough estimates say illicit cannabis still makes up 75% of all cannabis sales. That makes sense on the consumer’s side, though, since dispensaries are often 30% - 80% more expensive than the black market.

If you add layoffs, stagnating revenues, and banking problems to the mix, we can easily see how California’s cannabis is having trouble staying profitable. But because of this pricing problem, the California government is missing out on additional tax revenue. 

As a result, California is currently mulling over a tax relief plan for the cannabis industry. In the current legislative agenda, several bills are up for consideration intended to offer tax relief to cannabis businesses. These bills include provisions like:

Tax revenue is still trending upward in adult-use markets. However, to scale cannabis successfully, state governments have to enact responsible tax policies that allow the industry to breathe.




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