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California Lawmakers Nix Temporary Marijuana Tax Cut

Marijuana bud at the OutCo Labs growing facility, May 9, 2019.
Matt Hoffman
Marijuana bud at the OutCo Labs growing facility, May 9, 2019.

An effort to jumpstart California's licensed marijuana retailers failed to clear a key legislative committee on Thursday, likely dooming its prospects for the year as the country's largest legal cannabis industry continues to flounder in the shadow of the illegal — and tax free — black market.

Prices for legal marijuana products are inflated in California by the 15% tax consumers have to pay at the cash register and a cultivation tax on growers of $148-per-pound for the flower and $44 per pound for the leaves.

A group of state lawmakers, led by Democrat Assemblyman Rob Bonta, had hoped to temporarily lower the sales tax to 11% and suspend the cultivation taxes for 2 ½ years to help retailers compete with prices on the black market.

A Bonta spokesman said he had agreed to eliminate the sales tax portion of the bill in the hopes it would attract enough votes to get it out of committee and have a chance to pass. But the bill failed to clear the Assembly Appropriations Committee on Thursday, meaning it won't advance to the Assembly Floor and is likely dead for the year.

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"I'm really disappointed," said Tiffany Devitt, chief compliance officer for CannaCraft, a cannabis manufacturer and distributor. "We're being crushed by the black market."

It's possible lawmakers could revive it using legislative maneuvers later this year, but it's unclear if they want to do that. California's marijuana tax collections are not at all what lawmakers had expected after voters agreed to legalize the drug in a state with nearly 40 million people.

State officials estimate that if marijuana tax collections continue on their current pace — which is hard to predict because the industry is so new — the state will collect $270 million this year. That's $85 million less than initial estimates.

Last week, Democratic Gov. Gavin Newsom's administration lowered marijuana tax revenue estimates for the budget year that begins July 1 by $223 million.

RELATED: California Senate Approves Fix For Pot Licensing Snag

"The taxes are so high that there is a big incentive to avoid them," said Dale Gieringer, director of the pro-marijuana group California NORML. "The black market is presently at least as large or larger as the legal market."

State taxes are not the only barrier to California's emerging marijuana market. Industry advocates say local taxes and requirements on licensing and lab testing add up to make a legal marijuana business more expensive. Plus, retailers often don't have a place to put their money because most banks won't accept it because selling marijuana is still a federal crime.

Efforts to address the banking problem did survive the legislative deadline. The Senate Appropriations Committee advanced Senate Bill 51, which would create cannabis-limited charter banks and cannabis-limited charter credit unions. The law would allow those financial institutions to cash special-purpose checks.

"We can't sit by while the safety of legal business owners, their employees, and the general public are put at risk. SB 51 represents a first step in getting cannabis cash off the street and integrating these legal businesses into our economy," Sen. Bob Hertzberg, D-Van Nuys, said in a news release.