Bill to Lower California Cannabis Tax Rates Passes First Committee

PRESS RELEASE: SACRAMENTO- AB 3157, introduced by Assemblymembers Tom Lackey (R-Palmdale) and Rob Bonta (D-Oakland), passed the Assembly Committee on Revenue and Taxation with bipartisan support. The bill is aimed at reducing the price disparity between legal cannabis businesses and black market sources.

“Now that voters have enacted Proposition 64, it’s up to us to make the system work,” said Assemblyman Lackey (R-Palmdale). “We have a choice to make. We can either support the legal, regulated market or we can continue to see this activity occur through illegal channels.”

“California cannabis businesses are making significant investments as they embrace the regulated marketplace while, at the same time, being undercut by unregulated competitors," said Assemblymember Rob Bonta (D-Oakland). "AB 3157 reduces the tax burden on the licensed cannabis market during this transition period, keeping customers at licensed stores and helping ensure the regulated market survives and thrives.”

AB 3157 will suspend the state’s cultivation tax which currently charges a flat tax of $148 per pound. It will also reduce the state’s excise tax from 15% to 11%. Both tax reductions are temporary and would sunset in June 2021 after California’s regulated market has had time to mature. The current tax structure places licensed businesses at a significant disadvantage to illegal retailers and black market sources.

The Fitch credit rating agency estimates that the current cumulative tax rate in California is as high as 45%. Other states with legal adult-use like Washington and Oregon have successfully taken steps to reduce their tax rates and encourage the adoption of the legal market. Local jurisdictions are also taking steps to reduce their tax rates including the City of Berkeley which lowered its local tax from 10% to 5%.

“By lowering the excise tax and postponing the cultivation tax it will lower the overall price for consumers at the register, which will also reduce the differential between illicit and legal prices. Reducing this gap is critical to making the legal market more competitive against the illicit market and more attractive for consumers.” said Beau Whitney, Senior Economist at New Frontier Data.

Currently legal cannabis sales include a state excise tax of 15%, a state cultivation tax of $9.25 per ounce of cannabis flower ($2.75 per ounce of cannabis leaf; $1.29 per ounce of fresh cannabis plant), traditional sales taxes (ranging from 7.25% to 9.25%), and local cannabis taxes which vary.

AB 3157 is also joint authored by Assemblymembers Ken Cooley (D-Rancho Cordova), Reggie Jones-Sawyer Sr. (D-Los Angeles) and Jim Wood (D-Healdsburg).

AB 3157 is now headed to the Assembly Committee on Business and Professions.