Rescheduling is good news for California’s marijuana industry, but state still needs to cut regulations and taxes – Daily News

(AP Photo/Richard Vogel, file)

Despite being one of the largest and most mature legal marijuana markets in the country, California’s cannabis industry is struggling. Regulatory hurdles, high taxes and a still-thriving illicit market have left legal cannabis businesses in California struggling to stay in business.

The recent news that the Drug Enforcement Administration plans to reclassify cannabis into a less restrictive category under federal law could provide much-needed financial assistance to licensed California cannabis businesses. However, if the industry is to better serve Californians and reach its full potential, further action by state and local lawmakers is needed.

If the cannabis sales schedule is advanced under the federal Controlled Substances Act, legal marijuana businesses in California will see a reduced federal tax burden and improved access to investment. Marijuana is currently prohibited at the federal level as a Schedule I drug, the most restrictive category, preventing state-licensed cannabis businesses from accessing many traditional banking services and limiting investor interest. Moving marijuana to the less restrictive Schedule III could give cannabis companies greater access to financial services.

Perhaps more importantly, the move would finally allow state-sanctioned cannabis businesses to deduct ordinary business expenses – such as payroll and rent – ​​from their federal corporate income taxes. Such deductions are available to other legal businesses but are prohibited for persons dealing in federally controlled drugs classified as Schedule I or Schedule II substances. As a result, state-licensed cannabis businesses pay an effective tax rate higher than 70%.

While California marijuana businesses may gain significant relief from a lower federal tax burden, rescheduling cannabis sales will not take into account the myriad other taxes, fees and compliance costs imposed by state law. California marijuana dispensaries must also pay a statewide marijuana sales tax of 15%, a general sales tax of 7.25%, and local taxes in most jurisdictions.

An analysis by the Reason Foundation compared local tax rates across California counties and found that cumulative local taxes per pound of marijuana range from $51 in Santa Cruz County to $814 in Solano County. Cannabis companies also pay licensing and application fees. State and local regulations also impose detailed rules on cultivation, retail sales, transportation, manufacturing, testing, facilities, safety, environmental compliance and other aspects of the cannabis business, all of which add to high startup and operating costs, making entry difficult. new businesses into the market and making a profit is almost impossible.

Tax and compliance costs are passed on to consumers. By some estimates, taxes alone account for more than 40% of the final price of legal marijuana in California. Legal producers compete directly with illegal producers who have established their market share for decades. Illegal cannabis businesses are not subject to the taxes and compliance costs of their licensed counterparts and often offer lower prices to consumers. As a result, years after legalization, illegal sales still account for about two-thirds of marijuana sales in California.