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Government's Cannabis ATM 

Wednesday, Feb 17 2016

California's cannabis gold rush has at last reached the august halls of government. Noting that legal sales of medical cannabis exceed $1 billion annually, state Sen. Mike McGuire (D-Healdsburg) last week unveiled a proposal that would make California's biggest cash crop one of the most heavily taxed commodities in the state.

Under McGuire's "Marijuana Value Tax Act," a 15 percent tax would be slapped on medical cannabis at the point of sale. This would be added to taxes already paid on weed: state sales tax — 8.75 percent in San Francisco and 9.5 percent in Oakland — and any local taxes applied by local governments (which in Oakland is another 5 percent).

If this happens, marijuana sales would be taxed at nearly 30 percent in Oakland — where annual sales from its eight licensed dispensaries exceed $68 million, according to a city government estimate — and at a mere 25 percent in San Francisco (where our 28 licensed dispensaries rake in, well, nobody knows). This would mean medical cannabis is taxed more heavily than cigarettes, more heavily than alcohol — and certainly more heavily than prescription drugs, which are not taxed at all.

McGuire, who represents plenty of cannabis growers (and their angry neighbors) in Sacramento, believes the tax could raise up to $100 million annually. He wants the pot tax to help pay for the new state-level marijuana bureaucracy overseeing the cannabis industry, the Bureau of Medical Marijuana Regulation — created last fall, but not yet in existence. Cannabis taxes would also go to state parks, state wildlife and natural refuges, and (ahem) state law enforcement.

McGuire's proposal has precedent: It's in line with the proposed 15 percent tax that would be paid on sales of recreational marijuana under the Adult Use of Marijuana Act, the Sean Parker-funded voter initiative attempting to qualify for the November ballot.

All of this goes to show one thing, at least.

"They [state lawmakers] definitely see cannabis as an ATM," as one marijuana industry policy lobbyist working at the Sacramento level put it.

Passing taxes in California is no small feat — you need two-thirds approval in the Legislature, and supporting more taxes in one of the country's most tax-happy states is seen as a real political liability.

But this is cannabis, a fringe product consumed by less than 20 percent of California's 40 million people, most of whom appear fine with slapping a "sin tax" on a plant that was outlawed for most of their lifetimes. And in the cannabis industry, there is support to pay taxes — taxes mean legality and legitimacy and also mean some measure of protection from the government.

Just not 30 percent in taxes, the notion of which is leading some cannabis business people to rediscover their libertarian sides.

"It's too much," says Debby Goldsberry, executive director of Magnolia Wellness in West Oakland, who notes that, thanks to federal prohibition on weed, dispensaries can't withhold the cost of product from their business taxes. That means the cost of the excise tax would be passed onto the consumer, who already pays upwards of $15 to $20 a gram at retail (on a product that can cost as little as $600 a pound to produce).

"It could make it impossible to do business," she says, "and if they take it too far, it will just drive people back to the black market."

In fairness, the industry has yet to fully come out of the black market. As many as 75 percent of the state's dispensaries are operating without Board of Equalization seller's permits, BOE officials estimate, meaning they're dodging the taxman. (Though such games don't last forever, as Robert Martin, the former operator of the old San Francisco Medical Cannabis Clinic on 10th Street who owes the BOE $1.6 million, has found.)

Industry lobbyists are so far taking a neutral stance on McGuire's proposal. Hezekiah Allen, the head of the California Growers' Association, says his group has taken no stance. Similarly, Nate Bradley, executive director of the California Cannabis Industry Association, says his group has yet to take a position — but repeated some of Goldsberry's fears.

"We want and 100 percent agree with the need for taxes — it's good to recoup costs, and it's good for a regulated industry to put money back into local and state governments," he said. "We just want to make sure it's balanced and doesn't encourage a black market to continue to exist."

There's support in other states for the black market argument. In Washington state, where recreational cannabis is taxed at an astounding 37 percent, there are reams of anecdotes of consumers saying "no thanks" and sticking with their friendly neighborhood drug dealers. Then again, the state is expecting sales to exceed $150 million in 2016 — up from $67.5 million last year — meaning there are enough consumers willing to fork over serious taxes in exchange for lab-tested weed sold in a store.

Which suggests if McGuire's tax passes, people will pay it. Even if it doesn't, government is most certainly in the cannabis game to stay — and it's in it for the money.


About The Author

Chris Roberts

Chris Roberts has spent most of his adult life working in San Francisco news media, which is to say he's still a teenager in Middle American years. He has covered marijuana, drug policy, and politics for SF Weekly since 2009.


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