Taxes, costly regulations wreak havoc on marijuana industry

Related Posts

As a longtime cannabis entrepreneur, I’m in a unique position to secure a California medical and adult-use retail license by Jan. 1. The dispensary I manage, Magnolia Wellness of Oakland, has been locally permitted since 2013. This is significantly before the cut-off date for expedited state application processing, and our status allows us to slide into a temporary license, as long as we meet certain facilities standards. The city of Oakland has already approved existing dispensaries to serve the adult market, so it’s almost like hitting the marijuana jackpot, especially with our sister company poised to be licensed for manufacturing, too.

But legalization of marijuana in California is a “be careful what you wish for”-type of situation. The high taxes, intensive track and trace inventory management rules and expensive security protocols required to meet the new rules are crushing. Many of the state’s existing cannabis businesses will be forced to close because of them, and thousands of eager entrepreneurs will surely be forced to abandon their dreams.

I joined the effort to legalize marijuana way back in 1986 and co-founded my first dispensary, Berkeley Patients Group, in 1999 with goals and a vision in mind. The idea was to end cannabis arrests, to create jobs and to keep families together instead of being torn apart by a senseless war on drugs. My hope was that the barrier to enter the movement would be low enough that almost everyone could join, both those in the longstanding underground economy and new people getting involved with innovative ideas. The movement’s goal has been to creating an above-board cannabis industry, through which California could capture reasonable taxes and fair regulatory fees and where small family businesses, which make up the bulk of the industry’s backbone, could thrive.

Now, it looks as though survival of the fittest, and only experienced, well-funded business people will make it. Midsized dispensaries such as Magnolia will likely push through by bootstrapping costs and fees and keeping fingers crossed that enough cultivators and manufacturers will get licenses to meet the demand of the newly regulated market. After all, we have to get our supply from other licensed businesses, and the fear that our access to marijuana will soon be cut off is real.

Additionally, marijuana laws are full of excise taxes, which are similar to those placed on goods such as tobacco and alcohol in order to discourage use and sale. Businesses licensed in the new Cannabis Distributor category will soon have to pay an excise tax of about 33 cents per gram of marijuana under Proposition 64. This compounds at the retail level, where an additional 15 percent must be collected and paid to the state. In other words, the cost of each gram of marijuana, generally about $15-19 total under the current tax scheme, will rise by more than $3.

Dispensaries will soon pay a hefty annual licensing fee, too. Magnolia’s fee will be $79,000. This is the same with cultivators, manufacturers and distributors; these annual fees and these taxes are enormous, and the costs will have to be passed along to consumers. Add to this the cost of the high-end surveillance and security systems and the other facility improvements each business will be required to make, and the costs continue to pile up.

It’s simple from there. If the retail price is too high, and the sales, cultivation and manufacturing permits are too difficult to get, the underground economy will continue to thrive. The marijuana industry will continue to lack equity, with permits going only to people with wealth, while those with low incomes and people of color will continue to be disproportionately targeted for arrest and jailed.

We can’t stop here. It will take years of effort to develop effective regulations and to create workable tax schemes. Thankfully, both the marijuana movement and the industry that was built from it are aligned to make changes. We won’t stop until the right to cultivate, manufacture, sell and use marijuana is an inalienable right, never to be taken away again.

Debby Goldsberry is the executive director of Magnolia Wellness.