The governor of California on Thursday signed a wide-ranging bill to restructure the state’s adult-use marijuana program, including by eliminating a cannabis cultivation tax, in an effort to provide industry relief and further curtail the illicit market.
AB 195, which builds upon an amended budget proposal that Gov. Gavin Newsom (D) unveiled in May, passed both chambers with nearly unanimous support this week. Stakeholders say the legislation is imperfect, but many feel the bill represents a significant, positive development in the evolving market.
The key provisions going into effect eliminate the marijuana cultivation tax and shift the point of collection and remittance for the separate 15 percent excise tax on cannabis sales from the distribution to retail level. Additionally, there will be no increase in the excise tax for at least three years under the proposal, which is expected to be signed by the governor and then take effect immediately.
Newsom didn’t directly mention the cannabis bill in a press release about the budget package he signed, but he said generally that the legislation “invests in our core values at a pivotal moment.”
“Building a better future for all, we’ll continue to model what progressive and responsible governance can look like, the California way,” he said.
Advocates are also pleased that the three years of excise tax relief that would be provided under the bill is a significant expansion from the 18-month window that the governor proposed in his updated budget.
The legislation will also take steps to bolster enforcement against unlicensed operators. For example, property managers that knowingly rent or lease space to a business that unlawfully manufacturers, stores or sells cannabis will be subject to civil penalties of up to $10,000 for every violation per day. County governments can also take civil actions against unlicensed cultivators over water pollution or diversion.
Social equity marijuana businesses will be eligible for a $10,000 tax credit under the bill, and they will be able to keep 20 percent of the excise tax revenue from their cannabis sales for the purpose of reinvesting in their business.
Another provision that the industry is encouraged by is the inclusion of $40 million in tax credits, half of which would be reserved for eligible retailers and microbusinesses. The other half would go toward equity operators.
In a win for labor interests, the bill reduces the number of non-management employees that a business can have before being required to enter into a labor peace agreement from 20 to 10.
The legislation also appropriates about $670 million in marijuana tax dollars for education, youth substance misuse treatment, school retention, environmental clean-up and remediation related to illicit cannabis manufacturing, as well as law enforcement.
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Also, the bill includes Newsom’s requested $20 million one-time grant program to support the development and implementation of local retail licensing efforts. That’s an important component that’s meant to help reduce the cannabis policy gap throughout California, where more than half of the state’s cities and counties do not allow any type of cannabis licensees to operate in their area.
Department of Cannabis Control (DCC) Director Nicole Elliott said in an email to industry stakeholders that the new law will “bring tax relief to the cannabis industry, support equity businesses, strengthen enforcement tools against illegal cannabis operators, and protect youth, environmental, and public safety programs funded by cannabis tax revenue.”
“DCC is grateful to Governor Newsom and the Legislature for their commitment to improve California’s cannabis policies and further support an equitable, safe, and sustainable cannabis industry in California,” she said.
Relatedly, state officials launched a new resource in May, providing people with an interactive map showing where marijuana businesses are permitted—and where they are blocked from opening—throughout the state.
Meanwhile, California officials are distributing another round of community reinvestment grants totaling $35.5 million with tax revenue generated from recreational marijuana sales.
The Governor’s Office of Business and Economic Development (GO-Biz) announced last month that they’ve awarded 78 grants to organizations throughout the state that will support economic and social development in communities disproportionately impacted by the war on drugs.
The amount of funding and number of recipients increased from last year’s levels, when the state awarded about $29 million in grants to 58 nonprofit organizations through the CalCRG program.
California has taken in nearly $4 billion in marijuana tax revenue since the state’s adult-use market launched in 2018, the Department of Tax and Fee Administration (CDTFA) reported late last month. And for the first quarter of 2022, the state saw about $294 million in cannabis revenue generated from the excise, cultivation and sales tax on marijuana.
The state collected about $817 million in adult-use marijuana tax revenue during the last fiscal year. That represented 55 percent more cannabis earnings for state coffers than was generated in the 2020-2021 period.
California officials also announced in January that the state had awarded $100 million in funding to help develop local marijuana markets, in part by getting cannabis businesses fully licensed.
DCC distributed the funds to 17 cities and counties where there are a disproportionate number of provisional marijuana licenses, rather than full-year licenses. The department first announced that applications for the Local Jurisdiction Assistance Grant Program had opened in October.
Meanwhile, the California Assembly on Thursday approved a Senate-passed bill that would establish a pilot program to allow certain jurisdictions throughout the state to authorize safe consumption sites where people could use currently illicit drugs in a medically supervised environment.
Photo courtesy of Brian Shamblen.