This story was written in collaboration with L.A. TACO’s Media Lab class at USC, an incubator for emerging journalists aimed at forging a new path for the future of journalism. Keep a look out for our ongoing series of stories from L.A. TACO Media Lab students.
California’s legal cannabis industry has been fighting a slow, uphill battle for years. Operators have been squeezed by taxes, slow-moving regulations, and an illegal market that still outsells licensed dispensaries.
So on Sept. 22, when Gov. Gavin Newsom signed Assembly Bill 564 in an effort to lower cannabis taxes and aid the industry’s struggles, many saw it less as a policy change and more as a small lifeline.
The bill reverts the excise tax rate from 19%, which was raised in July, back to 15% in September, and aims to make cannabis cheaper for consumers and help dispensaries stay afloat after years of heavy regulation.
The excise tax, a tax placed on cannabis, alcohol, and other products, is one layer in a stack of fees put on cannabis, in addition to sales taxes and local city taxes. The bill rolls back to 15% of excise tax, through the end of June 2028.
In a "dying" industry, many supporters express their concerns that this bill and tax halt may not be enough to revive the industry due to different factors that contribute to its collapse, like resistant local governments and high taxes.
They emphasize that more reform in taxation and policymaking would be necessary to truly make a change in the industry as a whole to make it worth saving and beneficial to its community for consumers and business owners alike.
The National Organization for the Reform of Marijuana Laws (NORML) was a proud sponsor of the bill. The organization provides a platform to allow consumers to voice their opinions in public policy debates and advocates for safe, high-quality cannabis. There was an emphasis to “hold the line” on taxes, a stance that seemed reasonable given the industry’s dire situation.
“The industry's been troubled by overregulation and high expenses and taxes for quite a while,” said Dale Gieringer, the director of NORML. “And there's also been an oversupply problem. There's just lots of cannabis out there at the wholesale level, which [has] depressed prices. They're making it hard to make any money.” To put the excise tax difference into perspective, use the comparison of a pre-roll joint and a glass of wine, two items where the excise tax is imposed. NORML reports that one glass of wine faces $0.01 whereas a pre-roll joint, depending on the retail price, could face $1.24 of taxes at 15%.
Jerred Kiloh, president of the United Cannabis Business Association and owner of multiple dispensaries, emphasizes that taxes aren’t the only issue that makes it “impossible” to run a competitive and profitable business. They are just the tip of the iceberg.
Illicit businesses don’t have to worry about business tax certificates, retail licenses, and application processes to obtain permits, nor attorneys that assist with the applications, compliance fees, and an obligation to create programs that benefit the community. Kiloh describes these as just the “barriers to entry.”
Kiloh says that adding all the costs of operating the business, before the costs of compliance, his local fee, and taxes puts him at $96,000 for an annual fee.
Licensed dispensaries must follow all these rules or they risk facing hefty penalty charges. Harsh regulations make it more difficult for them to survive than their illicit competition, who make up 60% of the cannabis market, and won’t be penalized as harshly if caught.
“Financially, it's incentivized to do it illegally,” Kiloh said. “I can be charged with a higher crime of mismanaging products through track and trace than a person who is running an illegal dispensary selling illegal products on the street.”
Kiloh’s frustration in the overregulation from local governments is not unique. He said this is an issue that many dispensary owners confront when questioning whether it’s worth staying in an unsustainable business.
“The governor signed a bill that we had to fight for to go back to a previously non-sustainable excise tax that the state was collecting because they had raised it another 26% from where it was,” Kiloh said. “Did we really get anywhere? We were in the exact same place we were when it wasn't working. And so what's changed?”
Kiloh criticized the government for setting up a system filled with barriers since it legalized recreational cannabis in 2016, and placing a system that makes it harder to get products to consumers when illicit markets have been efficiently doing it for decades. He said it contradicts the government’s goal to “take drugs off the street” and “make things safer.”
Despite the bill promising that cannabis would be more affordable, high taxes have instead pushed many consumers to continue buying from illicit markets, increasing their risk of exposure to contaminated and untested products.
“I think [the government] is still neglecting to understand that people would rather pay cheap prices for products that people can grow, as opposed to paying massive amounts of tax,” said Randy Lowe, a shift lead at MedMen Cannabis Dispensary in Downtown Los Angeles.
Lowe had witnessed consumers leave MedMen in search of lower prices. He noted that many consumers were looking for the best bang for their buck for recreational use, and that can push them to those markets.
“Even though that aspect of it is to give people good, clean products and help build an industry based off of reputation, it's almost like the taxes and the things that they charge us to do makes it much more difficult for recreational legal shops to get on their feet and start moving products because we have a lot more levels,” he said.
Lowe explained that tax reform could be pivotal in saving the industry. As a budtender, he often breaks down the various taxes that consumers pay, many of which differ from city to city, and he said implementing a flat tax could make pricing fairer and keep customers coming back.
Tax reform could impact the community beyond finances alone. It could also combat the lingering stigma surrounding cannabis.
In Lowe’s experience, legalization somewhat normalized cannabis use for its medicinal benefits. He personally relies on cannabis to help his inflammation from Lupus. However, when governments prioritize profits over accessibility and research, it pushes consumers toward cheaper, unregulated products that can be harmful to their health.
By shifting those priorities to focus more on affordability and education, consumers could be more inclined to safely purchase their medicine through legal and licensed shops. Tax reform could serve as a key step forward in reducing illicit markets and keeping California’s cannabis industry alive.
The alternative is seeing its consumers go back to a time of black-market and street sales, with the state reaping none of the benefits and products of unknown provenance.
