SF Blog writes, “California’s craft growers say that playing by the rules is forcing them out of business.”
Here’s the introduction to the report
The subject of taxes may seem inherently boring to some, but for Tsong and Wentzel, changing the laws dictating the cut California takes from legalized cannabis may be the difference between whether Beija Flor stays in business or not.
At the center of the issue is what’s known as a cultivation tax, which essentially requires cannabis farmers in California to pay based on the dry weight of what they grow before it’s sold. Thus, instead of paying proportionally to sales, farms like Beija Flor must pay this tax for all the flower and leaves they grow regardless of what happens next.
According to Tsong, this can amount to 15-20 percent of the farm’s total revenue — revenue they won’t even have until the product is sold. That’s in addition to the excise tax (calculated at 15 percent of the average market price when purchased at retail), which itself has caused the cost of cannabis to dip as retailers lower prices to combat sticker shock.
“There’s basically a tax penalty to be in the cannabis business,” Tsong says, “because if you grew, say, tomatoes, you wouldn’t have to pay it.”
The other folks who don’t pay it? Those operating illegally.
The result is a vicious cycle that rewards larger, legal corporate farming operations that have the capital to withstand paying a high percentage of their potential earnings in taxes upfront without fear that diminished sales will shutter their operations. Meanwhile, illegal growers pay no taxes and are currently selling their notably less safe alternative at a fraction of the cost. In January, the United Cannabis Business Association reported that unlicensed storefront and delivery programs in the state outnumbered their legal counterparts by a ratio of nearly three to one.
At least one state legislator appears to be hearing what small farmers are saying.
In late January, Assemblyman Rob Bonta (D-Alameda) introduced AB 1948. If successful, the bill would eliminate cultivation taxes for three years and lower the state excise tax from 15 percent to 11 percent for the same period. A hearing on Monday, March 9 brought a number of farmers to Sacramento to voice their approval for the legislation, but their work is currently on hold as the world turns its attention fully to combating the spread of coronavirus.
Regardless, the dire need expressed by farmers to amend how cannabis taxes are collected in California is not one that can wait very long.
“We find ourselves coming close to shutting down every year,” admits Daniel Stein, who owns and runs Humboldt’s Briceland Forest Farm with his wife, Taylor.