Could an Error in California’s Recreational Cannabis Law Make Medical Cannabis Tax-Free?

Four states legalized recreational cannabis earlier this month; California, Maine, Massachusetts and Nevada. All four had thriving medical cannabis programs that showed voters the potential tax revenue available to state’s willing to expand their programs. It appears though, that in its eagerness, California might have made a small oversight.

However, unlike most tax oversights that harm consumers, this error looks like it will benefit them, at least in the short-term.  Under proposition 64, the state would apply a 15 percent excise tax on recreational and medical cannabis, with recreational cannabis having an additional 7.5 percent sales tax added on. According to California’s high court, Prop 64 eliminated the current medical cannabis sales tax until the new regulations take effect in January 2018.

“The whole point of the sales tax exemption for medical patients was to strike a balance between keeping medical [marijuana] affordable after the new excise tax was in effect …,” Jason Kinney, a spokesperson for the Proposition 64 campaign, said.

The ruling could mean that California medical cannabis sales will be tax-free until the end of 2017. According to the San Francisco Chronicle this could result in the loss of almost $50 million in lost tax revenue.

“Obviously, we strongly disagree with any interpretation of the measure that comes to the bizarre conclusion that medical [marijuana] patients are somehow immediately exempt from the state sales and use tax—before the excise tax takes effect,” Kinney continued.

This could further impact the state’s recreational cannabis market as more and more Californians acquire their medical cannabis cards to take advantage of a year of tax-free medicine. The uncertainty of the cannabis market is also forcing businesses from Colorado and other recreational states to stay clear of California until this is sorted out.

Another concern is the enormity of the state and the large number of different regulations that dispensaries and other cannabis businesses will have to deal with.

“California is such an enormous state that if you’re operating in a situation where you have a patchwork of different regulations in different municipalities, it would make production very difficult, because there could be different rules,” says Nancy Whiteman, co-owner of Wana Brands.