Business
Key marijuana tax reforms absent in California budget blueprint
California lawmakers approved a preliminary $300 billion state budget this month, but they left several marijuana business issues unresolved – the latest sign of the industry’s lack of influence at the state Capitol in Sacramento.
The record spending plan, which Gov. Gavin Newsom must sign before the new fiscal year begins July 1, failed to address the marijuana industry’s top concern: high taxes, which make it harder for legal businesses to compete with the underground market.
Taxes – along with several other issues – will likely be addressed in so-called “trailer bills” in coming weeks, cannabis industry sources said, as lawmakers and Newsom negotiate the particulars of a historic $98 billion surplus.
Cannabis industry advocates hope the cultivation tax will be eliminated, a proposal backed by the governor and state lawmakers.
But the marijuana excise tax on retail purchases could be a sticking point.
Newsom has proposed eliminating the cultivation tax while shifting the collection of excise taxes from distributors to marijuana retailers starting in January.
The excise tax rate would likely stay at 15% and could potentially increase over time if cannabis tax revenues fall below certain thresholds.
Some lawmakers – including Sen. Steven Bradford, a prominent Los Angeles Democrat – have pressed for more substantive tax reform, including eliminating the cultivation tax and lowering the excise tax to 5%.
Tax-reform outlook dim
Hirsh Jain, founder of L.A.-based cannabis consultancy Ananda Strategy, cautioned that sweeping marijuana tax overhauls are unlikely in the expected trailer bills.
“There does not seem the political will to support this kind of far-reaching tax reform, despite how badly needed it is,” he said.
“It will still remain very difficult for legal operators to compete with the illicit market.”
Lobbyist Nara Dahlbacka, who represents the California Cannabis Coalition, said the limited industry relief approved in the budget reflects the marijuana sector’s weakened position among policymakers.
“The last few years have had meager, if any, legislative gains,” said Dahlbacka, partner at Oakland-based Milo Group.
“We were out-lobbied by the very groups whose budgets our taxes fund.”
One trailer bill proposes maintaining the 15% cannabis excise tax for three years while eliminating the cultivation tax.
After that, the excise tax could be raised – a major concern for cannabis businesses that have struggled amid last year’s collapse in wholesale marijuana prices.
Over the past few years, California’s marijuana economy has sunk, taking hundreds of failed operators and ventures along the way.
The 15% excise tax on retail sales of recreational and medical cannabis is projected to generate $711 million this fiscal year and $787 million in the next fiscal year.
Other cannabis issues that could be addressed in trailer bills include:
- Relief for social equity operators.
- Adding enforcement tools to combat the illicit market.
- Boosting worker protections.
- Improving electronic licensing systems and data.
What’s in the budget
While several key industry concerns remain unresolved in the preliminary budget, lawmakers did approve a few cannabis-related initiatives related to research and business expansion.
They include:
- $2 million for the Center for Medicinal Cannabis Research at the University of California San Diego to study driving impairment effects of commercial cannabis.
- $20 million for a Cannabis Local Jurisdiction Retail Access Grant Program, which depends on a separate, yet-to-pass bill. The program will help cities and counties without retail cannabis programs establish marijuana stores.
“The retail access grants will help local jurisdictions provide access to safe, legal and tested cannabis products to consumers throughout the state,” said Nicole Elliott, director of the state Department of Cannabis Control.
“It will also assist us in combating the illegal cannabis markets that exist in and around jurisdictions with cannabis prohibitions.”
Industry reaction
Michael Steinmetz, founder of Northern California-based distributor Flow Cannabis Co., said the preliminary state budget doesn’t go far enough to address the high costs of compliance. and anything less will only increase the price of regulated marijuana.
“It is not the lifeline we so desperately need,” he told MJBizDaily via email.
Steinmetz is an organizer of the newly created Save California Cannabis Coalition, which sent a letter to Newsom last month detailing industry woes – particularly the crippling effects of high taxation and regulation – while providing several recommendations.
The letter was signed by nearly 200 state operators and brands.
Amber Senter, the CEO of Oakland-based infused cannabis processor and distributor Makr House, blasted the budget’s lack of relief for minority operators.
“Not only has the state fallen short on its promise to right the wrongs inflicted upon Black and brown communities by the war on drugs, but five years of oppressive taxation has nearly pushed California’s Black and brown operators out of the industry entirely,” said Senter, who helped craft the California Cannabis Social Equity Act of 2018.
That measure helped create more equitable ownership and employment opportunities for those adversely affected by the war on drugs.
Senter said a lot of minority communities still “can’t access affordable, safe and regulated cannabis” and that the Legislature’s failure to act is part of the problem.
Source: https://mjbizdaily.com/key-cannabis-tax-reforms-absent-in-california-budget-blueprint/
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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