California cannabis clubs rang in the New Year with record profits thanks to the newly expanded legal market, which as of Jan. 1 allows anyone aged 21 and up to buy pot from a licensed seller. Advocates celebrated the milestone, but voiced concerns about the high taxes and cost of doing business in a heavily regulated industry.
A Bay Area lawmaker on Thursday introduced a bill to remove at least some of those costs. Democratic Assemblyman Rob Bonta’s AB 1741 would lift the 10 percent tax penalty on cash payments for adult-use weed.
A 2016 law waived the same penalty for medical pot sales. Bonta’s bill would simply expand that law to the newly sanctioned recreational market.
“AB 1741 will create equity for taxpayers within the cannabis industry by removing an unfair penalty on cash payments made to the state,” the Oakland lawmaker said in a press statement on Thursday.
Under existing law, the California Department of Tax and Fee Administration imposes a 10 percent fee on all non-electronic payments. But because federal law classifies cannabis as a Schedule I drug, most banks won’t do business with collectives.
“Therefore, most cannabis businesses have no choice but to operate and pay taxes in cash,” Bonta said.
State Board of Equalization member Fiona Ma applauded Bonta’s bill, calling it a step toward greater parity in the tax code.
“I have consistently been a champion for fair and transparent regulations within the cannabis industry and creating equity in the tax code is a key part of my mission on the Board of Equalization,” she said.
Ma added: “By expanding the same penalty fee waiver to adult-use cannabis that is currently offered to medical cannabis business owners, we are removing unnecessary and unfair barriers for those that simply want to be a part of California’s booming economy.”
San Jose is home to 16 licensed pot clubs. Of those, 10 are permitted to sell recreational cannabis. The city imposes a 10 percent tax on all sales, while the state demands a 15 percent excise tax in addition to permitting fees and other costs. According to Inc. magazine, many collectives pay effective tax rates of up to 60 percent.