California governor proposes to remove taxes on cannabis cultivation

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The governor of California unveiled a budget proposal last Friday that calls for the elimination of the cannabis cultivation tax and a review of the distribution of cannabis-related tax revenues.

Democratic Gov. Gavin Newsom’s revised May budget includes measures to further combat the illicit market and make the legal industry more competitive, largely by scrapping the grow tax that cannabis companies currently have to pay.

This measure is demanded by the latter, all the more so as they are struggling to cope with rising inflation and the reduction in demand compared to the peak of the coronavirus pandemic. The governor stressed on Friday that he specifically pledged to explore ways to minimize the influence of illicit cultivators and vendors on legal businesses.

While one might think that removing the culture tax would hamper state revenue flows, a recent analysis of the Reason Foundation revealed that monthly tax revenue would increase by 123% by 2024 if this policy change were adopted.

According to the report, removing the culture tax would lead to lower costs for consumers and therefore an increase in legal purchases that would more than compensate for any lost revenue over time.

However, Gavin Newsom’s proposal is not binding in itself. It must be passed by the legislature by a majority of at least two-thirds to be implemented.

“We have worked closely with legislative officials and have made tremendous progress,” the governor said during a briefing Friday. “We haven’t finalized any of that, so I want to be careful not to disrupt that progress.”

The governor’s revised budget proposal also includes updated estimates on tax revenue allocations for the 2022-23 fiscal year.

The state expects to distribute $401.8 million for education, youth drug treatment and school retention, $133.9 million for manufacturing-related environmental cleanup and remediation illicit cannabis and $133.9 million for law enforcement purposes.

“These numbers reflect a total increase of $74.7 million over the Governor’s budget estimate,” the revised budget summary reads. “These estimates also reflect proposed statutory changes to restructure the cannabis tax framework and maintain a base level of funding for this allowance. »

Separately, the governor’s plan calls for moving “the retail distribution excise tax collection and remittance point on January 1, 2023,” while maintaining the 15% excise tax rate on cannabis sales.

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