On July 1st, the excise tax for cannabis went from 15% to 19%. This was baked into the Control, Regulate and Tax Adult Use of Marijuana Act, when the cultivation tax ended. In order to balance out the loss of revenue, the excise tax would go up to 19% this year, and then up every two years after.
Governor Newsom was hoping to delay the increase, but that effort failed, and now cannabis is slightly expensive across the state.
Here’s an example of the cost of the new excise tax:
Selling price of cannabis product: $35
Local 10% cannabis business tax: $3.50
Delivery fee: $5.00
Service fee: $3.00
Total subject to excise tax: $46.50
New 19% cannabis excise tax: $8.84
Total subject to sales tax: $55.34
Prior to the increase, the excise tax would have been $6.98.
It’s unclear how badly this will affect businesses, but with most of them struggling already with high prices, this could easily become the nail in the coffin. Sales for the first quarter of this year were at $1.09 billion, 30% drop from the 2021 peak, and the price of wholesale marijuana keeps going down.
A measure is making its way through Congress now that would freeze the excise tax at 15% until June 2031, but it’s unclear if it will pass.
The Assemblymember who introduced the bill told CalMatters “This tax could kill this industry and there’s still not enough being done. California is going to forfeit what should have been a huge opportunity for our state.”
Read more about the repercussions of higher taxes at CalMatters.
