June 12, 2019

Proposed California Bill Aimed to Reduce Tax Burden on Cannabis Cultivators and Retailers


Two measures – one at the state and the other on the local level – have recently floundered and been challenged, respectively, potentially throwing up hurdles to the expansion of California’s licensed cannabis market.

In the state legislature, the Associated Press reported that Assembly Bill 286 did not receive the approval of the Assembly’s Appropriations Committee. According to the AP, the failure of the bill in committee likely means that it will not be passed into law during the current legislative session.

As originally proposed, AB 286 would have eliminated the state’s cultivation tax until July 2022, as well as reduce the 15% excise tax on retailers to 11%. However, the latter aspect of the proposal was stripped from the bill in previous negotiations. Still, with California’s cannabis tax revenues lagging significantly behind prior projections it appears that state lawmakers did not feel comfortable eliminating the cultivation tax, which yielded only $35 million in revenue to the state in 2018, according to information from the California Department of Tax and Fee Administration (CDTFA).

The text of AB 286 states that, “The primary goals of this act are to reduce the size of the state’s illicit cannabis market and to stimulate sales in the licensed, regulated, and taxed cannabis market.” With the measure now likely shelved for the year, market participants in California’s licensed system will have to find other ways to compete with illicit actors that can offer lower prices.

In March the Santa Barbara County Board of Supervisors had adopted an ordinance related to the use of hoop houses in cannabis production. Santa Barbara County has become a hub of California cannabis cultivation with the advent of licensing and regulation in the state at the outset of 2018. The ordinance generally reduced requirements to obtain local licenses for growers using hoop houses, setting the stage for the expansion of such operations in the jurisdiction.