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Aug 24, 2020
Bill To Freeze Cannabis Tax Rates Introduced In California

The Assembly and Senate budget committees introduced a budget trailer bill for cannabis that, among other things, will provide short-term tax certainty for licensed cannabis businesses, beginning Jan. 1, 2021.

SB 827 freezes, for one year, the California Department of Tax and Fee Administration’s (CDTFA) authority to increase the existing cannabis tax rates, including the wholesale mark-up rate used to calculate the excise tax. The bill also prohibits the CDTFA from increasing the cultivation tax rate for inflation unless the adjustment is for an inflation rate that is less than zero.

SB 827 follows an announcement by the CDTFA last November that, effective Jan. 1, 2020, the cannabis mark-up rate would increase from 60% to 80%. This was accompanied by an increase in cultivation tax rates of approximately 4%.

“These tax increases came at a particularly difficult time for the legal cannabis industry, which has faced considerable challenges since the regulatory framework took effect on Jan. 1, 2018,” according to a California Cannabis Industry Association press release.

With the CDTFA currently mandated to annually adjust the cultivation tax for inflation, there is significant concern that the cultivation rate will increase once again beginning Jan. 1, 2021. The CDTFA will also be contemplating an adjustment to the cannabis mark-up for purposes of collecting the excise tax. Facing already burdensome taxes and a more unpredictable market than ever, California’s legal cannabis industry cannot sustain another tax increase in 2021.

SB 827 will suspend the CDTFA’s authority to increase the state cannabis tax rates on one year, providing much-needed certainty, while also allowing the legal industry to focus on broader reform efforts aimed at reducing state and local taxes, addressing ongoing regulatory hurdles that exacerbate cost pressures on the legal industry, expanding legal retail access, combatting a thriving unlicensed market and removing barriers to entry.

SB 827 was developed by the Assembly and Senate Budget Committee in collaboration with CCIA staff and is the result of months of negotiations on behalf of the legal cannabis industry.

SB 827 will be considered by the Legislature before the 2019-20 Legislative Session adjourns on Aug. 31, 2020.

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