Federal Legalization of Cannabis Could Drive Up Prices in California

We might be at least a few years away from federal legalization of cannabis. Lawmakers on both sides of the aisle are resistant—though of course Republicans, with some exceptions, are the biggest obstacle. At this moment, there just aren’t enough votes in the Senate to pass a bill. If the Republicans retake the House in 2022, as current forecasts have it, that will likely set the effort back by at least another two years.

Still, the trend seems to be in favor of legalization, and most observers seem to think it will happen sometime this decade—assuming that America, and planet Earth, still exist.

It could happen sooner than that if the politics align. For now, we are at an impasse, but legislation has been introduced, and from it, we can see where the starting point is for Congressional proponents of cannabis reform, most of them Democrats. The consensus among analysts seems to be that if the legalization bill in the Senate—the House has already passed a similar bill—were to pass in its current form, it would be less than ideal for both the cannabis industry and consumers. Just for starters, legal weed would become even more expensive than it already is.

New Frontier Data, an analytics firm focused on the weed business, last week issued a report saying as much. Titled “Up in Smoke? Analysis of the Cannabis Administration & Opportunity Act,” the report concluded that the bill “would advance the legal cannabis industry, enabling businesses to operate and thrive in legal, regulated environments, while also benefiting local economies.” But at the same time, New Frontier warned, the bill’s proposed federal taxes on pot would “result in a comparatively less competitive market than the illicit one.”

In other words, it would make a bad situation, like the one we have in California, even worse. High prices and lack of availability in many areas of the state have resulted in legal pot taking only about a fifth of the total market. The vast majority of weed sold in California is sold illegally, thanks to high taxes, overregulation and home rule, which allows localities to deny licenses to cannabis businesses.

Local governments are getting on board, but slowly. According to Hirsch Jain, a cannabis consultant quoted recently in by the trade publication MJBizDaily, in the past two years the number of municipalities and counties issuing cannabis licenses has risen from about a third of the total to about 40%. But there are still only 745 full-service dispensaries in the state—not including delivery services. To really serve demand, he told MJBizNews, “there should be between 4,000 and 5,000.”

Delivery is legal across the state, but, especially for people in remote areas, it’s often just a lot easier to buy weed from the dude down the street. It’s also way cheaper, given California’s high tax rates. On top of a cultivation tax and a normal sales tax, every legal weed sale is slapped with a 15% state excise tax, plus whatever local taxes are levied. The effective total tax on legal weed can be as high as 40%.

The Cannabis Administration & Opportunity Act, sponsored by Senate Majority Leader Chuck Schumer, Senate Finance Committee Chairman Ron Wyden, and Sen. Cory Booker, all Democrats, would impose a further tax that would after a few years reach 25%. It’s likely that California will by then have lowered its tax rate, though probably not by nearly enough to offset the effect of the new federal tax. The proposed levy would “significantly increase the cost to consumers,” New Frontier concluded.

The report also examined the regulatory aspects of the bill, and found that they would be onerous. Stringent, though often necessary, regulations in California and elsewhere are already dissuading would-be entrepreneurs from entering the business. Schumer’s bill would only exacerbate that problem, meaning that only large, well-funded businesses would be able to thrive.

“Once the costs of regulatory compliance and operational expenses are factored in, the environment for cannabis businesses under the proposed legislation would be encumbered, especially for small or under-capitalized businesses,” said Giadha A. DeCarcer, New Frontier’s founder and executive chairperson.

5 Comments

  1. Since human trafficking is all the rage, and many segments of the population participate or look the other way, wouldn’t it make sense to have the state step in and allow it?

    I mean, it would promote a safe and legal means of employing the former ‘lost souls’ normally trafficked.

    Further, the state(even Uncle Sam) would give their blessings and rake in all those fees and taxes!

  2. WilliamA, The Bumbling Biden Admin with Border Czar H.U. Harris are well on the way to providing the ‘lost souls’ to the Child Trafficking Industry.

    “Exclusive: Government can’t reach 33% of released migrant kids” (Axios)

    The Biden admin is Unable to Account for almost 5,000 minors released from HHS shelters thru May 2021.
    By Comparison – In 2018, the Trump admin was Highly Criticized for being unable to account for the whereabouts of around 1,500 children released from HHS shelters.

    During the first 5 months of the year, care providers made 14,600 required calls (less than 25% required) to check in with Migrant Minors released from shelters run by Dept of Health & Human Services.

    In 4,890 of those instances, workers were unable to reach either the migrant or the sponsor.

    The unsuccessful call rate grew, from 26% in January to 37% in May 2021.

    More than 65,000 unaccompanied Kids Crossed the Border ILLEGALLY during those months, and July set yet another all-time record for Illegal border crossers.

    Bloomberg Law recently reported that dozens of migrant children were released to labor traffickers.

    This happened in 2014 under the Obama/Biden Admin as well, when migrant teens were released to traffickers and forced to work on an egg farm.

    HHS agency’s website claims 30-day calls are required “to determine whether the child is still residing with the sponsor, is enrolled in or attending school, is aware of upcoming court dates and is safe.”

  3. You can grow six(6) plants per person.

    One(1) plant’s harvest can last even a heavy ‘Toker’ two years or more.

    The main issue is propagation of the ‘cannabis plant of choice’ without having to purchase a ‘clone’ and therefore be subject to taxation.

    Personally, I do not smoke and or advocate smoking anything especially, with all sorts of new COVID mutants showing up unannouned.

    David S. Wall

  4. what?

    taxation and regulation make prices go up?

    wow I’m glad that don’t over tax and regulate housing! otherwise it’d be REALY expensive

  5. Man, I can’t imagine how much legal weed one would have to toke or swallow for it to have a major impact on one’s budget. Waaaaay tooo much IMO. I buy some edibles every now and then and it lasts me for months—far less than my 2x a week beer habit.

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