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Tax reform for California's recreational marijuana industry leaves many unsatisfied

State regulators provide tax cuts to help legal cannabis growers
State regulators provide tax cuts to help legal cannabis growers 03:11

SAN FRANCISCO -- As California rolls out new tax cuts for legal marijuana growers to provide those who work in the industry relief, many claim the black market continues to make it difficult to survive in the business.

When California voters approved Prop 46 legalizing recreational marijuana, it came with a lot of promises. Unfortunately, some of those promises have brought the industry to near collapse.  

(credit: CBS2)

Those in the cannabis business have been pleading for tax reform to keep from going broke, but now that it has finally arrive, it's hard to find anybody who's satisfied with it.

"It is my goal to look at tax policy to stabilize the market.  At the same time, it's also my goal to get these municipalities to wake up to the opportunities to get rid of the illegal market," Governor Gavin Newsom explained when he announced reform plans at the beginning of the year.

It was a welcome relief to those in the cannabis industry.  But on Thursday, he signed a reform bill that probably didn't get the response he was hoping for.

"The people who are playing by the rules, honestly, are getting the "F" word.  They are getting messed up," said Reese Benton, owner of Posh Green Cannabis Boutique.

She opened her dispensary in San Francisco's Bayview District in 2017.  She says she's regretted the decision to operate legally ever since. Benton is supposed to pay an excise tax of 15 percent, but an invoice from her distributor shows she paid $600 on $2,300 worth of product. That's 26 percent.  

Add the city's sales tax and her total rate is nearly 35 percent. The reform plan doesn't lower her tax rate at all; it simply collects the money directly from Benton instead of her distributor.  She isn't surprised her store is empty while the illegal market is thriving.

"When people tell us, 'Oh it's cheaper on the street,' what can I say as a retailer?  Because I know it is cheaper on the street. So I can't get mad when that's where they want to go spend their money," she said.

So where is the tax reduction for the industry?  The state has suspended a "cultivation tax" to growers of $161 per pound.  That number was set when the price of cannabis was near $1,500. Now it's selling for as low as $300 per pound, eating up more than half the product's value.  

Johnny Casali owns Huckleberry Hill Farm in Humboldt County.  He said he's grateful the tax has been stopped, but now the middlemen and retailers -- who are also hurting -- are already demanding he lower his price because of it.

"Between the two of them, that money will be split up and figured out and it won't ever go to the consumer. And it's not ever going to come to the farmer either," said Casali.

He said the real problem is that the state has issued too many cultivation permits, flooding the market and driving down the price. Casali explained that's why the taxes are so crippling to the industry.  

But while It may seem unfair, the idea of legalized cannabis was sold to the voters as a source of funding for public programs.  California Department of Cannabis Control Director Nicole Elliot said the state can't forget that funding commitment as they try to prop up the market.

"It's a balancing act, right? So I think what you see in this tax reform package are mechanisms by which the State is trying to continue to fulfill that promise," said Elliot.

Elliot said the sign of any good compromise is that no one walks away totally happy.  But right now, it seems like no one in California's cannabis industry, from the grower to the retailer, is feeling happy at all.

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