California pot advocates say tax rates too high

OAKLAND -- Marijuana dispensaries across California experienced long lines on the first day of legal recreational pot sales. But advocates warned the legal industry won't survive without big changes, CBS SF Bay Area reports.

"I'm very happy about – thrilled really – to see the legalization of cannabis in California," said Steve DeAngelo, co-founder and CEO of Harborside in Oakland. "At the same time, I'm terrified about what's going to happen with these taxes."

Harborside has been a medical marijuana dispensary for more than a decade, and is now selling recreational marijuana at a much higher price. 

"In our shop here, the tax rate has gone from 15 percent all the way up to almost 35 percent for adult consumers," DeAngelo said.

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Steve DeAngelo

CBS SF Bay Area

Here's how that math works for Harborside. There is the regular state sales tax of 6 percent, and the regular Alameda County sales tax of 3.25 percent. Then there is a 15 percent state tax on marijuana, and a 10 percent Oakland tax on recreational marijuana.

Total taxes: 34.25 percent.

"That is a huge hit. And it's going to mean that a significant number of people, less affluent consumers, are going to turn to the lower prices of the underground market," DeAngelo said.

Some customers are willing to pay a premium for quality product, such as Geno Escalante, who was among those in line on Monday.

"We all want the best stuff and you know the best stuff is always here at Harborside," Escalante said.

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Geno Escalante

CBS SF Bay Area

DeAngelo said the black market may be lower cost, but Harborside offers hundreds of products not available on the black market and they also offer consumer protection.

"All of our medicine is tested in a laboratory," DeAngelo said. "It's evaluated both for safety, for things like pesticides and pathogenic molds, and it's also evaluated for potency."

Still, all this protection isn't cheap. In addition to taxes, marijuana regulations drive up the cost.

"We have to pay rent, we have to have security systems, we have to pay licensing fees, we have to have insurance, we have to buy equipment," DeAngelo said.

It adds up. And not everyone can pay the higher prices. People who are disabled or on fixed incomes may turn to the black market.

"They can barely afford cannabis now, much less with a 35 or 40 percent tax increase," DeAngelo said.

When people aren't buying from a regulated business, the state is getting zero taxes.

Colorado, Washington state and Oregon each legalized marijuana at one tax rate and then had to lower the rate to keep people in the legitimate market. DeAngelo believes California will have to do the same.

"I don't think that the current tax rate for cannabis in California is sustainable," he said.

Escalante agrees. "I honestly don't think this tax is gonna last too much," the customer said. "They'll see that cannabis is not bad. It's a plant."

DeAngelo said it makes no sense that marijuana is taxed so much more than alcohol. California taxes beer and wine at 20 cents a gallon. That amount has not changed since 1991.

As for federal alcohol taxes, the new tax law taking effect next year decreases the taxes on beer, wine and spirits.

Editor's Note: The video references a 5 percent Oakland tax on marijuana. The 5 percent tax is on medical marijuana. Recreational marijuana in the city is taxed at 10 percent.