Eliminating cannabis cultivation taxes in California would help the industry more than raising them

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A study shows that eliminating cannabis cultivation taxes provides better benefits to the market

Many would believe that increasing taxes would result in better economic support for a state; however, this is not actually true. New research on California’s cannabis tax structure indicates that lawmakers should consider repealing or suspending the cultivation tax, a revenue stream that raised more than $163 million last year.

The 40-plus-page report released earlier this month implements an empirical model to estimate the degree to which the Golden State’s tax regime affects participation within its commercial marijuana market. According to the results, it was found that maintaining the state’s current tax structure would generate slightly more revenue than reducing tax rates. However, if cultivation were no longer a part of those taxes, experts said it would boost market growth enough to generate similar revenue results over the same time period.

The research also revealed more information about the state’s various tax structures in addition to analyzing consumers’ decisions to participate in the legal or illegal market. The idea is to be able to quantify the impact of taxes on participation. “Taxes affect both consumers’ and producers’ decisions in the legal market primarily by introducing a price disparity between legal cannabis products and comparable cannabis products offered through the illicit market,” wrote Geoffrey Lawrence, the foundation’s managing director of drug policy, who authored the report.

Lawrence concluded by suggesting that wholesale marijuana taxes are hidden from the end consumer and are difficult to administer, audit, and form a “pyramid” in the supply chain. The analysis also indicated estimates of California’s monthly revenue growing to around $145 million by December 2024, an increase of 223.2% since March 2022. This could be achieved should the state cap its wholesale cultivation tax and retain its current 15% cannabis retail excise tax rate and the state’s general excise tax.