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California Gov. Gavin Newsom Adds Tax Cuts in Revised Budget Proposal

Newsom announced the revision proposal on May 13, which aims to set aside $150 million in order to “temporarily reduce taxes” and simplify the tax structure, while $21 million will go toward local governments to help expand cannabis’s retail footprint.

Newsom replied to a question from an anonymous source. Bloomberg reporter that he is “…addressing the persistent issue that is exactly what we anticipated would be a persistent issue—and that’s dealing with the black market, going after the illegal growers and the illegal operators,” Newsom explained. “Trying to level-set, trying to be flexible in terms of the cost pressures related to the current tax structure, and the lack thereof, in the black market.”

“This is [the] beginning of a process from my humble perspective, in terms of my thinking,” Newsom continued. “This will be a multi-year process to get that black market, get it on the retreat—not the ascendancy—and to get the retail and responsible adult-use market on steady ground.”

In conjunction with Newsom’s statement, the Department of Cannabis Control also released a statement from Director Nicole Elliot. “We have heard from many of you who have said that the current cannabis tax framework is overly complex,” Elliot wrote. “We know that current tax policies disproportionately burden cannabis farmers and small businesses and create instability throughout the supply chain, ultimately undermining the societal benefits of a taxed and regulated market.”

The proposal includes a zero cultivation tax effective July 1st, strengthening tax enforcement policies and altering the expiration date for excise tax collection. “I share this information because I wanted you all to know about the work the Governor’s Office is doing to support our collective efforts,” Elliot concluded. “Creating a sustainable, safe, equitable, and legal cannabis market in our state is no small feat—it is a labor of love, and it takes all of us working together to help make this a reality.”

Reason Foundation promotes liberty values and recently examined the potential consequences of changing the existing cannabis tax. The organization suggested that the current cultivation tax should be suspended or eliminated. It also recommended that retail excise taxes be reduced or other ways to attract local government interest. “Tax costs are a significant component of retail prices and this analysis shows that a reduction in taxes can make legal products more price-competitive with illegal products and lure more consumers into the regulated market. This overall market growth will quickly displace the lost revenue resulting from a reduction in tax rates,” the Reason Foundation concluded.

Newsom presented his budget proposal to the fiscal year 2022-2023 initially in January. Newsom stated that he aims to bring about positive change. “It is my goal to look at tax policy to stabilize markets; at the same time, it’s also my goal to get these municipalities to wake up to the opportunities to get rid of the illegal market and the illicit market and provide support and a regulatory framework for the legal market,” Newsom said. Newsom said that the $595 million in cannabis tax revenue was used to finance substance abuse treatment and other public safety initiatives.

In June 2021, Newsom proposed a $100 million package “to be provided as grants to cities and counties to help cannabis businesses transition from provisional to regular licenses.” Seventeen cities and counties were chosen to receive this grant.

Late April saw the approval of Assembly Bill 2691, which allows small-scale cannabis businesses to sell their products at farmers markets or other special events. Assemblymember Jim Wood who introduced the bill, stated that this would help smaller cannabis businesses to navigate the challenges of competition and high taxes. It will also help them increase their visibility with local customers.