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Gov. Newsom Pledges Marijuana Tax Overhaul To Save California's Collapsing Cannabis Industry

SAN FRANCISCO (KPIX 5) -- In 2016, there was much celebration as California voters approved Proposition 64, legalizing recreational marijuana. But now, advocates say the cannabis industry has fallen on hard times and in his budget presentation on Monday, Governor Gavin Newsom pledged his support to try to save it.

When Prop 64 legalized cannabis, it signaled acceptance of the industry and promised a boon to state and local tax bases and the end of the illegal market. But it hasn't actually worked out that way. Most local governments have been reluctant to approve retail sales outlets and now, producers say taxes are eating them alive. So Newsom's budget comments came as a welcome surprise.

"It is my goal to look at tax policy to stabilize the market," he said. "And at the same time, it is also my goal to get these municipalities to wake up to the opportunities to get rid of the illegal market, the illicit market, and provide support in a regulatory framework for the legal market."

Currently, cannabis is taxed at $162 per pound cultivated. That was OK when it sold for about $1,200, but the price has now dropped to as low as $300 dollar per pound, while the tax remains fixed.

"You're looking at 50 percent of the cost of a pound of cannabis--an additional 50 percent of that is a tax!" said Amber Senter, a cannabis entrepreneur producing products in Oakland. She said she likes being able to sell out in the open, in the legal market, but understands why many are still choosing to operate outside the law.

"What's the incentive for them to come over and pay these crazy taxes?" she said. "Like, they don't want to."

Many feel the regulated market is on the verge of collapse, especially for the original small cannabis producers who fought so hard for legalization.

"It's completely unsustainable. They're not even able to recoup their cost of production," said Genine Colemen, Executive Director of an industry group called the Origins Council.

A group of cannabis advocates and small farmers plan to demonstrate Thursday at the state Capitol, urging the legislature to amend the regulations to keep the legal market alive. But Coleman admitted that won't be easy.

"There are a lot of problems that we're now navigating due to the proposition, in part because it is a voter proposition and is very hard to amend," she said.

Because the regulations were created by the initiative process, they can only be changed by another vote of the people or a 2/3 vote of the legislature. That's why, despite Newsom's encouraging words, there is a growing sense of desperation among those in the business.

"We need help now," said Senter. "We can't wait much longer. We're at a breaking point."

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