Californians May be Shocked at Cannabis Price Hike

New taxes will apply to both medical and recreational cannabis sales and Californian cannabis consumers may or may not be prepared for the price hike. In some instances, the new taxes could rise to 45 percent for certain recreational purchases, according to the CNN Money. Only Washington will be taxing cannabis at a higher rate.

“Be careful what you wish for,” is what many Californians are telling themselves after the reality of Proposition 64 sinks in, including the taxes that go with it.

Beginning January 1, 2018, California’s new taxes will apply to cannabis sales. The Medicinal and Adult-Use of Cannabis Regulation and Safety Act (MAUCRSA) is the consolidated combination of the licensing requirements of Proposition 64 and Senate Bill 94.

Retailers must collect a 15 percent excise tax from consumers based on the average retail price and pay it to the distributor. Things start to get expensive, however, after local taxes ranging from 7.25 percent to 9.25 percent are factored in. Consumers will pay 22.45 percent to 24.25 percent tax on cannabis purchases. Local businesses will also have to pay one percent to 20 percent of gross receipts. Farmers will have to pay a cultivation tax of $9.25 per ounce for flower, and $2.75 per ounce for leaves. All these taxes combined could trickle down onto everyday cannabis consumers.

Some analysts worry that high taxes could push some consumers back into the black market. “If taxes increase the price of cannabis beyond a certain point, the legal market becomes less competitive than the illicit market and then consumers become less likely to make the transition from the illicit market to the legal market,” John Kagia, analyst for New Frontier Data, told CNN Money.

The California Department of Tax and Fee Administration (formerly the California State Board of Equalization) posted a handy Tax Guide for Cannabis Businesses that breaks down the new taxes in an easy format. The state of Washington imposes the highest tax on recreational sales out of any state, but California is not far behind. Every state with recreational cannabis has complex tax structures that usually require the help of a tax professional.