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

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

Newsom said in response to a question from Bloomberg journalist that he “…deals with the persistent problem which is exactly what we anticipated would be a persistent problem – and which deals with the black market, going after illegal producers and illegal operators”, Newsom explained. “Trying to set levels, trying to be flexible in terms of the cost pressures of the current tax structure, and lack thereof, in the black market.”

“It is [the] the start of a process from my humble point of view, in terms of thinking,” Newsom continued. “It’s going to be a multi-year process to get that black market, roll it back – not the bottom line – and stabilize the adult retail and responsible use market.”

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

She summarized some of the changes in the proposal, which includes zeroing cultivation tax from July 1, strengthening tax enforcement policies, changing the excise tax collection deadline, etc. “I am sharing this information because I wanted you all to be aware of the work the Governor’s Office is doing to support our collective efforts,” Elliot concluded. “Creating a sustainable, safe, fair, and legal cannabis market in our state is no small feat – it’s a labor of love, and it takes all of us working together to help make it a reality.”

The Reason Foundation, which promotes libertarian values, recently analysis possible outcomes of changing the current cannabis tax. Ultimately, the organization recommended repealing or suspending the current cultivation tax, reducing retail excise taxes, or exploring other methods to attract local government interest. “Tax costs are an important component of retail prices and this analysis shows that reducing taxes can make legal products more competitive with illegal products and attract more consumers to the regulated market. This overall market growth will quickly replace lost revenue resulting from reduced tax rates,” said the Reason Foundation Concluded.

Newsom initially unveiled its budget proposal for the 2022-2023 fiscal year in January, stating that he strives to bring about positive change. “My goal is to look at fiscal policy to stabilize markets; at the same time, it is also my goal to make these municipalities aware of the opportunities to get rid of the illegal market and the illicit market and to provide support and a regulatory framework for the legal market”, Newsom said. He shared that $595 million in cannabis tax revenue has become available to fund drug treatment efforts, environmental remediation of illegal grow sites, and public safety activities.

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

Meanwhile, at the end of April, Assembly Bill 2691 was approved to allow small cannabis business owners to bring their products directly to consumers at cannabis grower markets and other special events. According to Assemblyman Jim Wood, who introduced the measure, it will help small cannabis businesses overcome the various challenges of high taxes and competition with big business, and help increase visibility with local consumers. .

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