Cultivation
Is California’s Cultivation Tax Cut Too Little, Too Late?
Businesses respond to California’s cannabis cultivation tax cut which took effect last week.
After four years of exhaustive efforts, California leaders eliminated the cultivation tax along with other changes, providing some bit of respite for cultivators. But does the plan just move money around, and is it even close to enough to save struggling farmers?
California Governor Gavin Newsom released his 2022-2023 revised budget on May 13—most notably containing the much-needed tax cuts. On June 29, Assembly Bill No. 195 passed in the Senate by 34-0, and the California Assembly voted 66-0 in favor of the bill. The bill took effect immediately following the signature of Newsom, providing the legal cannabis industry some much-needed temporary tax relief, which began July 1.
The state’s cultivation tax at over $161 per pound was scrapped and money was reallocated: Cannabis excise rate will remain at 15% for three fiscal years—but may be increased after July 1, 2025. Equity licensees will be able to retain 20% of the excise taxes they collect to reinvest into their businesses. They will also be eligible for a $10,000 tax credit. It also includes $40 million in tax credits, of which $20 million will go towards tax credits for storefront retail and microbusinesses, and $20 million for cannabis equity operators. The bill allows qualified businesses to claim tax credits of up to $250,000 for qualified expenditures beginning in the 2023 taxable year. It also adds additional enforcement tools against the illicit cannabis market.
Hardly a Long-Term Solution
Doug Chloupek, CEO and founder of Juva Life, faced many of these tax woes as a manufacturing permit holder in California. When Newsom proposed his revised budget back in May, Chloupek said the cannabis cultivation tax cuts failed to fix several key problems. Keep an eye on those excise tax rates in the next three years, for instance.
“It’s slightly better than a three-card shuffle and a nice little pretty Band-Aid on its surface,” Chloupek tells High Times. “Those who are entrenched in the industry would think, ‘Wow, this is an amazing thing.’ But at the end of the day, it’s more generally a bandaid to stop the inevitable bleeding that can only be fixed by the elimination of IRS Tax Code 280E—which is systemic to federal issues, and leaving it to a state like California, which has some of the highest taxation on a commodity that’s lost 80% of its value is just intrinsically the wrong move for our industry as a whole.”
In recent years, California’s price per pound of cannabis plummeted, and some growers faced what Johnny Casali from Huckleberry Farms described as “an extinction event.” A pound of cannabis—once worth up to $1,500 or more for some farmers—plummeted as low as $300 per pound. And when you shave off the $161+ per pound cultivation tax, that gobbles up half its value. Part of this price drop has been blamed on the advent of light deprivation weed.
“A good portion of the cultivation tax—which was being passed down by distributor to distributor to distributor and lost in the supply chain,” Chloupek says. “So it was never being paid anyway. So in terms of a cultivator materializing, an extra $160 a pound in value to help bridge the gap of the intrinsically broken system that we fundamentally have. At its core, it’s going to do nothing to help us cultivators that are dropping like flies right now.”
Chloupek’s 12-year background in the legal market began when he says he became the first permit holder in the state of California for cannabis manufacturing. Juva Life received a license to operate a storefront in Redwood City, where during the application process Juva was the highest-scoring applicant. The retail store is already under construction, and planned to open in Q3. Juva Life is focusing on cannabis research to create longevity for their business, and recently closed $11.8 million in funding.
What Businesses Say
“It’s a fundamentally broken problem,” Chloupek adds. “And they’re just looking at the industry as a cash cow, which is designed to fail, which is following the repetitive steps of every big transitional industry from big AG and Monsanto to a handful of them that have their monopoly to alcohol, tobacco, to form a they it’s a it’s a control consolidation is what you’re seeing right now. And by squeezing the industry at such a point by design or by unintentional or by thinking, all that’s doing is [hurting the people] who built it for the last 30 years, and who are being squeezed out of the industry. And unless you’re an MSO with a half a billion dollar market cap with, you know—$100 million in the bank to weather the next two years of storm, or you’re vertically integrated and you can barely squeak by your chances of surviving the next 2 to 3 years are next to nil.”
Members of the California Cannabis Industry Association seemed to agree that more steps are needed if the state is actually going to save the cannabis industry.
“The survival of the regulated industry is vital to providing ongoing tax revenues for the State and the advancement of public health and safety. Eliminating the cultivation tax is just one step towards stabilizing our industry but it’s an important one,” relays Lindsay Robinson, CCIA Executive Director.
Others say the legislation doesn’t go far enough regarding social equity measures.
“CCIA has worked for the past four years to eliminate the cultivation tax and we’re extremely proud of this important first step,” Robinson added. “Stability of the cannabis supply chain brings jobs and much needed tax revenue to the state while also protecting public health and safety and keeping cannabis out of the hands of children.”
While dropping the cultivation tax was a step in the right direction, it’s hardly a fix for an industry that is still fundamentally flawed.
Source: https://hightimes.com/news/is-californias-cultivation-tax-cut-too-little-too-late/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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