TAX RELIEF & REFORM 2022
We understand the importance of tax dollars to our economy and to many vital programs and services within Lake County, and we have been proud to contribute over $9 million to the Lake County budget in FY 2020. However, many growers and industry members are at a point right now, due to the huge price drop of cannabis and other market forces, that we cannot meet the flat tax. It comes down to one thing:
Without tax relief and reform, there will be no cannabis tax base.
Below are some FAQs to help understand the current state of commercial cannabis and the need for tax relief and reform.
We look forward to working with members, other industry groups, and community members to for conversations and further communication. Email firstname.lastname@example.org to get in touch.
Cannabis dollars help community programs and local law enforcement. What will happen if the taxes are suspended or repealed?
Without Tax Relief or Reform for the cannabis industry, there will be no tax base at all for these programs. For example, if 100 cannabis companies contribute $9 million in tax revenue and 80 of those companies go out of business, there would theoretically only be $1.8 million dollars (all things equal). If the tax rate was reduced or tied to gross receipts (it is currently a flat tax), those 100 companies could stay in business and contribute closer to the original tax base.
How is cannabis taxed?
Cannabis farmers are taxed in the following ways:
Canopy Tax - Each County has their own local tax. Lake County taxes the full square footage of the farm, not just the crop. $1/outdoor, $2/mixed light, and $3/indoor. For example, if you have an fenced-off are of one acre, but only have a license for 10,000 square feet, you are paying $1/square foot for an acre ($44,000) but only getting income for 10,000 square feet.
Cultivation tax - A flat rate of $161.28/pound. So if a pound is going for $300, the grower gets $138.72 before all the other taxes and cost of operations.
Excise Tax - this is passed onto the consumer, but taken out of the amount that a farmer or producer could make off of a product.
Income Tax - Cannabis businesses are subject to State and Federal income tax but cannot deduct normal business expenses at the Federal level such as payroll taxes, rent, etc.
Cannabis is considered an agricultural product through the State of California, but is the only agricultural product taxed at farm.
What is the current price/pound?
The price of a pound of cannabis has dropped dramatically. Many cannabis businesses budgeted a price of $500 as a low end for their financial models, never expecting that. However, some reports are of $200 or $300 a pound. After the flat Cultivation tax to the State, let alone other taxes, the farmer does not take home enough to cover costs.
Is there any federal crop relief?
Many agricultural crops and products qualify for federal relief if there is a natural disaster or crop damage. Cannabis has no such relief.
The following FAQs are from https://www.kcrw.com/news/shows/kcrw-features/this-week-in-weed-cannabis-taxes-la
If the state already has a general tax, why are Californians being charged such high amounts in certain places?
“Californians just legalized cannabis in 2016. We've had legal sales for three years, and the main driver of these price increases is that local cities can set a local business tax rate for cannabis.
That's anywhere from zero to 15% of gross receipts. … And just for comparison, Oakland's cannabis taxes are 417 times higher than Oakland's taxes on guns and ammo business. And in Los Angeles, the marijuana taxes on businesses are 2,808 times higher than the business taxes on a check cashing or a payday lender.”
Are the dispensaries the ones benefiting from any of these costs?
“Not at all. California dispensaries consistently report being in the red — that is not making money each year after they pay these taxes and pay the associated fees and costs of running their business. This is especially true for small or minority-owned cannabis businesses that don't have reserves per say or rich investors or a credit line — even though the state is taking in hundreds and hundreds of millions of dollars in tax revenue. The actual amount that a business owner is left with at the end of the day, they report, is often zero or a negative amount.”
What do you think fair cannabis taxes look like?
“We talked to tax experts who said that initially, you want to keep the rate low, to draw in shoppers and reduce the illicit market and then potentially raise them over time.
Our neighbor in Oregon, for example, caps local cannabis business taxes at 3%. And the local cities that have put that on the ballot have accepted that. ... So there is clearly room for local cities to get their revenue. But the question is: Do you make it too high to have those local businesses even exist in the first place?”