Cannabis: excise tax: cultivation tax.
The proposed changes in SB 1074 are expected to have significant implications for state revenue and the cannabis market equilibrium. Should the Legislature appropriate funds equivalent to the revenue lost from the cultivation tax, the bill stipulates that the excise tax would be increased by a percentage that will compensate for half of the revenue loss starting July 1, 2025, and subsequently increase to make up for the full amount by July 1, 2026. This measure will continue to ensure a sustainable revenue flow into the California Cannabis Tax Fund, which finances various state-funded programs and initiatives.
Senate Bill 1074, introduced by Senator McGuire, seeks to amend the Revenue and Taxation Code concerning the taxation of cannabis in California. The bill proposes to discontinue the cultivation tax, which impacts cannabis harvested for commercial purposes, effective July 1, 2022. Under the existing framework of the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), the cultivation tax was set at a specified rate per ounce of harvested cannabis. By eliminating this tax, SB 1074 aims to alleviate some financial pressures on cultivators while maintaining the existing excise tax imposed on cannabis purchases, which remains at 15% of the average market price of retail sales.
The sentiment around SB 1074 is mixed, reflecting the ongoing debate about cannabis regulation in California. Proponents, including many cultivators, view the elimination of the cultivation tax as a positive step towards reducing excess taxation in an industry that is still maturing. They argue that this move will help stabilize prices for consumers and support small businesses within the cannabis sector. Conversely, critics express concerns that discontinuing the cultivation tax may lead to a diminished revenue stream for the state, potentially impacting funding for public health and safety programs that benefit from the cannabis tax proceeds.
Notable contention surrounding SB 1074 includes the potential shift in tax burdens from cultivation to sales. Critics assert that while the cultivation tax might be reduced, the burden on consumers could increase if the excise tax is adjusted upward. Additionally, there are concerns about whether the lost revenue from the cultivation tax will indeed be adequately compensated through increased excise taxes. The debate reveals a broader concern regarding how the state manages tax revenues from an evolving cannabis market and the emphasis on finding a balanced approach that supports both the market's growth and the state's fiscal responsibilities.