California governor signs tax break for cannabis companies

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California’s governor signed a sweeping bill last Thursday to overhaul the state’s adult-use cannabis program, including eliminating the cannabis cultivation tax, in a bid to relieve the industry and to further reduce the illicit market.

Key provisions of AB 195 coming into force eliminate the Cannabis Cultivation Tax and shift the point of collection and remittance of the 15% excise tax on cannabis sales from the distribution level to the of retail. Additionally, there will be no excise tax increase for at least three years under the proposal, which is expected to be signed by the governor and take effect immediately.

The legislation also aims to take steps to strengthen law enforcement against unlicensed operators. For example, property managers who knowingly rent premises to a business that illegally manufactures, stores or sells cannabis will be subject to civil penalties of up to $10,000 per day per violation. County governments can also take civil action against unlicensed growers for pollution or water diversion.

Cannabis businesses linked to the social equity program will be eligible for a $10,000 tax credit under the bill, and they can keep 20% of excise tax revenue from their cannabis sales in order to reinvest them in their business.

The legislation also earmarks approximately $670 million in cannabis taxes for education, youth drug treatment, school retention, environmental cleanup and remediation related to illicit cannabis manufacture. cannabis, as well as law enforcement.

California has taken in nearly $4 billion in cannabis-related tax revenue since the adult-use market launched in the state in 2018.

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