Californian marijuana industry members are in distress, and an urgent cry for help has been made to state leaders. Legal cannabis companies in California say they are simply unable to keep pace with illicit marijuana business operators who don’t pay licensing fees, skip state taxes and fail to meet state mandated industry regulations. Licensed marijuana businesses warn the state’s largest emerging industry is at risk of going up in smoke, unless lawmakers quickly usher in regulatory changes.
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Following the recent epidemic of industry-wide layoffs, cannabis distributor and Flow Kana CEO, Michael Steinmetz, has built an informal coalition of business associations and leading companies to lobby state officials.
California Pot Business Hurdles
California’s marijuana business operators, who have had to limit employee numbers or scale back business growth plans, say it’s not just a matter of turbulence in the capital market or teething problems affecting a budding legal marijuana industry. But rather, the obstacles they face are state induced. Business owners agree on three major challenges: California is too:
- Light on licensed marijuana businesses;
- Heaving on commercial cannabis taxes; and
- Overbearing in its regulation of the marijuana industry.
As a result, the coalition of cannabis business owners has requested an urgent summit meeting with state regulators, Governor Gavin Newsom and key industry leaders, to work through these most pressing issues.
Opportunity is Knocking
Steinmetz believes this particular juncture presents a vast opportunity for the Golden State. He noted that if certain key issues can be addressed, the legal marijuana industry has the potential to outgrow California’s thriving wine industry.
While not the first state to legalize recreational marijuana sales among adults, California has quickly established itself as the world’s largest marketplace for recreational cannabis sales.
The Cannabis Market Split
This year’s legal cannabis sales in California alone have been forecast to exceed $3 billion. Not bad for a relatively new industry, and yet still only a fraction of the bigger picture, when accounting for the state’s illicit cannabis market, which is also expected to generate more than $8.7 billion in sales during the same calendar year.
Californian lawmakers initially anticipated that legalizing recreational marijuana use among adults would help curb the bootleg industry, but so far that just has not been the case. Perhaps in part due to the fact that not all legacy cannabis businesses have opted to make the transition to becoming licensed operations.
Josh Drayton, California Cannabis Industry Association (CCIA) spokesperson shared that some non-licensed outfits have expressed little to no interest in becoming regulated, while others feel it’s not cost effective to run a licensed business in an environment where so many local communities have banned cannabis sales.
Unexpected Tax Hikes
Then Californian marijuana industry’s collective nerves were stretched again in November, as state officials announced cultivation tax hikes, plus a higher mark-up rate – from 60% up to 80% – used to determine retailer and distributor excise taxes. These new tax nuances go into effect beginning January 1.
The new cannabis tax hikes kicking in in the New Year, clearly highlight the growing costs needed to run an above-board, legal cannabis outfit in California. This, coupled with the industry-wide job cuts we’ve witnessed in recent months, warrants businesses to call for legislative changes to help licensed companies stay afloat. Otherwise, we could be faced with an illicit market that continues to strengthen, and a legal cannabis industry that just withers away.
State officials seem to have gotten the message, and are working closely with key industry leaders to help meet and address concerns.
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The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 714-937-2050.
California Cannabis Industry Association