Pubdate: Sat, 11 Nov 2017
Source: Press-Enterprise (Riverside, CA)
Copyright: 2017 The Press-Enterprise Company


A global credit rating agency says taxes on recreational marijuana in
California could reach 45 percent in some places, high enough to keep
the thriving black market in business despite legalization.

The report by Fitch Ratings, "Local Taxes May Challenge Cannabis
Legalization in California," warns that state and local taxes may
combine to threaten the government revenue expected from the sale of
legalized cannabis and cannabis products. The recreational use of the
drug will be legal in California starting Jan. 1 under Proposition 64,
the Control, Regulate and Tax Adult Use of Marijuana Act, passed by
voters last November.

The state will levy a tax of 15 percent on the purchase of all
marijuana, including the sale of medical pot. Many local governments
are still working out how best to cash in. Voters in the city of
Salinas approved a tax of up to $25 per square foot of space used for
cultivating, while further north, Humboldt County is more
grower-friendly with a the cultivation tax that tops out at $3 per
square foot.

In last Tuesday's elections, voters in Palm Springs extended the
city's 10 percent tax on medical marijuana to cover recreational
marijuana when legal sales begin in January. Voters in Pacifica
approved a 6 percent sales tax that could rise to 10 percent in two

More than 60 cities and counties have now passed new taxes on
marijuana businesses with rates between 7.75 percent and 9.75 percent.
Added to the state marijuana tax, state and local sales taxes and
other business taxes, the tax rate on marijuana in California is
likely to be the highest of any of the states that have adopted a
policy of legalization.

"California's high taxes are likely to keep black market prices
competitive into the long term," Fitch analysts wrote in September.

California growers produce an estimated 13.5 million pounds of
marijuana per year, but the state Department of Food and Agriculture
estimates that only about 2.5 million pounds of it are consumed within
the state's boundaries. Roughly 11 million pounds of the crop are
exported out of state annually. Because of this well-established
infrastructure for shipping illegal marijuana, it's unlikely that
regulations and inspectors from the Bureau of Cannabis Control will be
able to halt the transportation of the drug across state lines.

The U.S. Drug Enforcement Administration has been trying for 44 years,
and we can see how well that's worked out.

The text of Proposition 64 promised, "By legalizing marijuana, the
Adult Use of Marijuana Act will incapacitate the black market and move
marijuana purchases into a legal structure." Exactly how that could be
accomplished was not made clear.

Here's a hint: Tax cuts. Fitch reports that in Colorado, Washington
and Oregon, a thriving black market after legalization forced state
lawmakers to lower cannabis taxes in order to be more competitive with
illicit sellers.

California officials are projecting that marijuana sales will yield up
to $1 billion in annual tax revenue. Because of federal banking
regulations that prohibit banks from having marijuana-related
businesses as customers, the state is making plans to accept the
massive tax payments in cash. Treasurer John Chiang suggested that the
money may have to be picked up by a fleet of armored cars.

Looks like everybody in government is thinking about highway robbery.
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