Crucial Cut

[dropcap class=”kp-dropcap”]M[/dropcap]any Berkeley residents, as well as the rest of Californians, were inevitably subject to sticker shock after taxes were imposed as the new cannabis regulations were implemented in January. For over 20 years, California’s medical cannabis industry functioned without a regulated tax system. Some consumers are now paying 35 to 45 percent in tax, after local and state taxes are included, which in turn could be driving some consumers back to the black market.

It’s an exceptionally high rate to pay for any kind of product or service, which has led some cities and municipalities in California to reconsider their cannabis tax rates. Berkeley is among the first to do so.

The city of Berkeley dropped its local taxes from 10 percent to five percent, and the new rate recently became effective. Once state taxes are added, Berkeley residents now pay a total of 40 percent in taxes at the counter. Cannabis customers in California must pay a state excise tax, a cultivation tax, a sales tax and a city tax.

“The City Council may impose the tax authorized by this Section at a lower rate, and may establish an exemption for cannabis businesses whose gross receipts are below a specified amount.”

Mayor Jesse Arreguín recommended that the city council adopt an ordinance amending Berkeley Municipal Code Chapter 9.04 to modify the business license tax rate for non-medical cannabis businesses to $50 on every $1,000 of gross receipts or five percent. The business license tax rate for medical cannabis businesses is half of that, or $25 on every $1,000 of gross receipts.

The issue was revisited on Feb. 27 in the Berkeley City Council. “The City Council may impose the tax authorized by this Section at a lower rate, and may establish an exemption for cannabis businesses whose gross receipts are below a specified amount,” The city council’s agenda reads. “The Council may adopt different rates and exemption levels for Medical and Non-Medical Cannabis Businesses. No action by the Council under this paragraph shall prevent it from subsequently increasing the tax rate for any type of cannabis business to the maximum specified in this Section and Section 9.04.240 or from modifying or eliminating any exemption.”

Ordinance No. 7,590 was passed by the city council during the second reading on Feb. 27 and the new tax rate finally became effective on March 27.

The only items with a higher tax rate than cannabis, according to the amendment agenda, were taxes on firearms, private rubbish haulers and professional sports events. Every other tax rate was lower.

In 2018, people can buy cannabis illegally through various digital platforms or through previously existing channels, which allows them to avoid paying taxes altogether. However, buying cannabis off of the black market is not only illegal, but it eliminates the safety net of testing for contaminants and residues.

California state cannabis taxes are a whole other story. Another bill in the works, Assembly Bill 3157, would lower the state excise tax from 15 percent to 11 percent. The bill was introduced by Assemblymembers Rob Bonta and Tom Lackey. Even after lowering both local and state taxes, the effective tax rate that consumers see would still remain around 25 to 41 percent, which still generates plenty of money for local and state funding needs.