California’s legal cannabis market is on the verge of collapse as high tax rates are making it noncompetitive with the illegal market, industry insiders are telling California officials.
Dozens of cannabis companies, executives and advocates wrote a letter to Gov. Gavin Newsom last week warning of the market’s imminent collapse.
The letter blamed the regulations and taxes on the cannabis industry for driving legal prices higher and leading to the illegal market generating two to three times more in sales.
“The opportunity to create a robust legal market has been squandered as a result of excessive taxation,” the letter reads. “Seventy-five percent of cannabis in California is consumed in the illicit market and is untested and unsafe.”
Companies and groups that signed the letter include the California Cannabis industry Association, the California arm of the National Organization of the Reform of Marijuana Laws, the Los Angeles-based United Cannabis Business Association, Flow Kana Inc., Harborside Inc. and CannaCraft.
The companies’ message to Newsom was clear: “Our industry is collapsing,” they wrote, and the current system is “rigged for all to fail.”
Industry leaders asked Newsom to lift the cultivation tax placed on growers, grant a three-year hold from the excise tax and expand retail shops throughout the state.
Since cannabis sales are left up to the purview of each city, only about one-third of California cities have retail dispensaries.
“We need you to understand that we have been pushed to a breaking point,” the letter reads.
The companies also asked Newsom to include their asks in his upcoming budget proposal for next year.
“The solution to these issues and the possibility of saving this industry lies in your hands,” the letter reads.
Newsom spokeswoman Erin Mellon released a statement saying the governor understands the situation and supports tax reform to go along with increased scrutiny of the illegal market.
“It’s clear that the current tax construct is presenting unintended but serious challenges,” Mellon said. “Any tax-reform effort in this space will require action from two-thirds of the Legislature, and the governor is open to working with them on a solution.”