Cannabis and Taxes: Why Are California’s Taxes Higher Than I Am?

2018 marks a historical year for California and cannabis. When recreational was legalized, we watched as our medical dispensaries were finally able to open their doors to all. We finally saw the beginning of the future we’d always dreamed of. As the stigma around cannabis dissolved, people of all walks of life opened their minds to this multi-faceted plant.

Dispensaries in Sacramento were finally able to serve their products to customers and patients alike. New products and methods were developed designed specifically for recreational consumers. Research and development, thorough lab testing, and much more time and energy was put into the industry.

So if this is supposed to be a beautiful time for the industry and our community, why are the taxes so high? Are the dispensaries just being greedy? Or is there something else going on that we’re not seeing? Where are these taxes even going? We’ll answer all of your pressing questions and set the record straight about cannabis and taxes here in California and in Sacramento.

Let’s break down the taxes.

When you purchase a cannabis product, that product is taxed four different ways: excise tax, sales tax, city marijuana tax, and neighborhood rehabilitation tax. Each has its own purposes and all are imposed by the government. If the dispensaries didn’t collect these taxes, they wouldn’t be compliant with the law, and it would jeopardize the legitimacy of their business.

In California, the 15% excise tax imposed on consumers is implemented on certain specific goods, usually being luxury products. Examples, other than cannabis products, include products linked to specific health issues, cigarettes, alcohol, and tanning salons.

The sales tax is the typical 8.25% tax you pay on almost everything, cannabis-related or not. It varies from city to city so if you went to Los Angeles, you’d see a state sales tax of 9.5% and if you went to San Diego, it would be 7.75%.

The 4% city marijuana tax and the 1% neighborhood rehabilitation tax are both controlled by Sacramento. Some cities have higher, and some have lower, but all of these taxes are geared for the same thing. Bettering our city and improving our community.

Back when recreational cannabis was illegal, the government only imposed the state tax on medical patients. Unfortunately for both the consumers and the dispensaries, the new taxes are mandatory and are integral to the legitimacy of a dispensary.

The shops are feeling a decline in sales because of these taxes, but are obliged to continue enforcing them. Every day these dispensaries see the disappointment in their customers, and it breaks their heart. Shop owners are passionate about keeping their customers happy, but the only way they can do that is to impose these taxes. They’re stuck in between a rock and a hard place when all they want to do is continue to serve their customers the products they love.

Where do these taxes go?

However frustrating it is for your wallet, these taxes are doing the community some good. A portion of the revenue goes to universities to study Prop 64 and its impact on other drugs and/or alcohol use. Another portion will go to the highway department to test and study the effects of driving while impaired. Funds are also being allocated to government services such as local health department’s jobs placement, mental health treatment, substances use disorder treatment, system navigation services, legal services, and more.

Some of the funds are even being allocated to researchers that are studying the possible adverse effects of cannabis use. The results of this research will give the federal government the information it needs to possibly reschedule cannabis.

The future…

In a perfect world, we want the taxes down and we want the federal government to legalize our favorite plant.

Is that going to happen? Maybe. Is it going to happen over night? Definitely not.

In an industry that’s always changing, it’s safe to say things won’t always be like this.

However, if the taxes you’re paying for are fueling further research for safety and for technology advancements, is it really all so bad?

Capitol Compliance Management blog - What does the future of the cannabis industry look like? And what will come of the taxes?

Did you think the dispensaries were responsible for the new taxes? Did you know how the taxes were benefiting our community? We are passionate about being transparent and providing the most up-to-date and accurate information about the cannabis industry as we can. Tune in to The Cannabis Report on our social media pages and on our website to learn more about the industry.

Are you a cannabis business in Sacramento looking to stay up to date with the latest news and trends in the industry? Give us a call today to learn more about what we can do for you.