California’s Marijuana Tax Hike Has Experts Skeptical That Black Market Will Thrive

Marijuana joints and leaves.
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California’s Marijuana Tax Hike Has Pot Enthusiasts Worried

California is planning to raise taxes on both recreational and medical marijuana. But, while it may help the state in raising additional revenue, California’s marijuana tax hike plan has both industry analysts and pot-lovers worried for a good reason.

By January 2018, legal pot sellers in California could be slapped with state and local taxes higher than 45%. It is estimated that a bag of marijuana enough to roll six joints, which costs, say, $35.00 right now, could see its price go up to range between $50.00 and $60.00, once California’s marijuana tax hike goes into effect.

The news has consequently sounded an alarm in the pot community. Regular marijuana buyers are worried about paying the extra price.

Pot buyers, regardless of their use, will be bearing the tax hike. So not only will the recreational pot enthusiasts be forced to pay nearly double the current price for their reefers, but medicinal pot users will also find it expensive to buy the green grass for their medical needs.

While there’s certainly an incentive driving California’s marijuana tax hike—that is, the state can earn an extra buck in tax revenue—there’s a major downside that is seemingly being ignored. In fact, it’s worrisome that the tax hike may do more harm to the state than good.

Analysts Find California’s Marijuana Tax Hike Plan Bad News

Industry analysts speculate that California’s marijuana tax hike could actually end up strengthening the black market—which certainly makes intuitive sense.

When legal sellers will be forced to sell at tax-laden high prices, black market sellers will find the perfect opportunity to undercut them.

Industry analysts at ratings agency Fitch Ratings Inc. warn that legal marijuana markets will be disadvantaged at the hands of the black markets following California’s marijuana tax hike.

The ratings agency says, “High tax rates raise prices in legal markets, reinforcing the price advantage of black markets.”

Fitch analysts further remind, “California’s black markets for cannabis were well established long before its voters legalized cannabis in November 2016 and are expected to dominate post-legalization production.”

According to the state’s plan, California will be charging 15% excise tax from marijuana sellers beginning January 1, 2018. In addition, the state will also levy a cultivation tax of $9.25 per ounce of cannabis flowers and $2.75 per ounce of cannabis leaves.

These levies will be supplemented by local city and county taxes, which could range between 7.75% and 9.75%.

All in all, marijuana taxes may vary across the state, but could go up to a whopping 45% in some cities and counties if the proposal is passed, giving the state’s black market the opportunity to thrive in the legal environment.

 

Sources

California slapping high taxes on marijuana, causing sticker shock for some,” Los Angeles Times, November 5, 2017.

High taxes on legal pot in California could mean black market will thrive,” Los Angeles Times, October 30, 2017.

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