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California governor pledges cannabis tax reform, but details sketchy

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Gov. Gavin Newsom gave California’s marijuana industry reason to rejoice this week when he came out forcefully in favor of overhauling the state’s cannabis tax system to help MJ businesses woo customers from the thriving underground market.

“It is my goal to look at tax policy to stabilize the market,” Newsom said during a news conference Monday after releasing his 2022-23 budget proposal.

“It’s also my goal to get these municipalities to wake up to the opportunities to get rid of the illegal market … and provide support and a regulatory framework for the legal market.”

But details about how Newsom hopes to accomplish these goals remain scarce.

Any tax changes would likely come from a stand-alone bill, according to cannabis industry sources familiar with the state Legislature, while a grant program would probably be wrapped into the budget.

Still, it’s far from clear:

  • How Newsom would stabilize the legal cannabis market.
  • What tax changes he will seek.
  • How any grant program would work.
  • Whether any tax reforms would translate into cannabis prices that are low enough to draw consumers away from illicit operators.

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“The devil is in the details,” said Jerred Kiloh, president of the Los Angeles-based United Cannabis Business Association.

Lindsay Robinson, executive director of the California Cannabis Industry Association, said there’s “reason for us to be optimistic. But I also think there’s a lot of work ahead, and it’s not a done deal by any means.”

What might be coming

Newsom ally Dustin Moore, a Sacramento-based principal at Axiom Advisors, said the most likely target for tax reform is elimination of the state cultivation tax.

That tax was increased on Jan. 1 to $10.08 per ounce of flower, $3 per ounce for leaves and $1.41 per ounce of fresh plant material.

Moore said the tax will be the focus of a bill being drafted by state Sen. Mike McGuire of Humboldt County.

“I don’t know how quickly this will happen. But certainly during this session, the cultivation tax will go away,” Moore predicted.

“This is a watershed moment for the industry.”

Moore said he understands the grant program will be rolled out “in very short order,” because Newsom is “well aware of the need to expand retail.”

He noted the Newsom administration has already backed multiple cannabis-related grants, including for social equity programs and to help localities get more licenses processed.

But McGuire’s bill might not be the only one introduced to reduce marijuana tax rates, both Robinson and Kiloh said.

And any tax bill would have to gain a two-thirds super majority in the House and Senate.

“There’s just a lot of hurdles. We don’t want to cultivate a false sense of security” within the industry, Robinson said when asked how confident she is that tax reform would be accomplished this year.

But Newsom’s budget gave the industry an opening that can be exploited, said Genine Coleman, the executive director of the Origins Council, which represents small cannabis farmers across the state.

“It all portends well, and it’s an all-hands-on-deck kind of negotiation scenario,” Coleman said. “If we get nothing done this year, the industry very well may collapse, and our membership certainly will.”

Industry clamoring for help

A coalition of business owners and activists rallied at the state Capitol in Sacramento on Thursday to emphasize, once again, that the legal marijuana industry is on the brink of collapse and to demand change from lawmakers.

“One year from now, there will be very few of us left to tax,” said Karla Avila, a small farmer and executive director of the Trinity County Agriculture Alliance.

Avila warned that the state’s marijuana taxes and regulatory costs were killing small businesses and further empowering the illicit market.

“I call on our lawmakers to make nothing short of drastic changes. Right now, today. Repeal the cultivation tax,” Avila said.

Others called for a suspension of the state’s 15% cannabis excise tax, at least for social equity businesses that are even more financially disadvantaged than other companies, along with a “tax holiday,” a move championed by Flow Kana executive Michael Steinmetz.

Steinmetz told MJBizDaily via email that Newsom’s announcement this week is a “positive first step” but stressed that “time is of the essence” to save small licensed businesses, in particular.

He pledged to “continue to raise our voices” until the Legislature has acted to stabilize the market.

Glass House Group President Graham Farrar said it’s apparent the governor “has nailed what it is the industry needs.”

“It’s two things: It’s lower taxes, so we have a chance to compete with the illicit market, and more retail, so we can start to turn the tide.”

John Schroyer can be reached at john.schroyer@mjbizdaily.com.

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Kansas Medical Marijuana Hearings Cancelled After Senate GOP Leader Reroutes House-Passed Bill

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A top federal drug official says the “train has left the station” on psychedelics.

National Institute on Drug Abuse (NIDA) Director Nora Volkow said people are going to keep using substances such as psilocybin—especially as the reform movement expands and there’s increased attention being drawn to the potential therapeutic benefits—and so researchers and regulators will need to keep up.

The comments came at a psychedelics workshop Volkow’s agency cohosted with the National Institute of Mental Health (NIMH) last week.

The NIDA official said that, to an extent, it’s been overwhelming to address new drug trends in the psychedelics space. But at the same time, she sees “an incredible opportunity to also modify the way that we are doing things.”

“What is it that the [National Institutes of Health] can do to help accelerate research in this field so that we can truly understand what are the potentials, and ultimately the application, of interventions that are bought based on psychedelic drugs?” Volkow said.

The director separately told Marijuana Moment on Friday in an emailed statement that part of the challenge for the agency and researchers is the fact that psychedelics are strictly prohibited as Schedule I drugs under the federal Controlled Substances Act.

“Researchers must obtain a Schedule I registration which, unlike obtaining registrations for Schedule II substances (which include fentanyl, methamphetamine, and cocaine), is administratively challenging and time consuming,” she said. “This process may deter some scientists from conducting research on Schedule I drugs.”

“In response to concerns from researchers, NIDA is involved in interagency discussions to facilitate research on Schedule I substances,” Volkow said, adding that the agency is “pleased” the Drug Enforcement Administration recently announced plans to significantly increase the quota of certain psychedelic drugs to be produced for use in research.

“It will also be important to streamline the process of obtaining Schedule I registrations to further the science on these substances, including examining their therapeutic potential,” she said.

At Thursday’s event, the official talked about how recent, federally funded surveys showed that fewer college-aged adults are drinking alcohol and are instead opting for psychedelics and marijuana. She discussed the findings in an earlier interview with Marijuana Moment as well.

Don’t miss out on the @NIDAnews, @NIAAAnews, & @NIMHgov-sponsored virtual Workshop on Psychedelics as Therapeutics: Gaps, Challenges, and Opportunities, Jan. 12‒13, 2022. Learn more and register: https://t.co/S1zttkoYXq pic.twitter.com/C2Qrk6FN9a

— NIDAnews (@NIDAnews) January 10, 2022

“Let’s learn from history,” she said. “Let’s see what we have learned from the marijuana experience.”

While studies have found that marijuana use among young people has generally remained stable or decreased amid the legalization movement, there has been an increase in cannabis consumption among adults, she said. And “this is likely to happen [with psychedelics] as more and more attention is placed on these psychedelic drugs.”

“I think, to a certain extent, with all the attention that the psychedelic drugs have attracted, the train has left the station and that people are going to start to use it,” Volkow said. “People are going to start to use it whether [the Food and Drug Administration] approves or not.

There are numerous states and localities where psychedelics reform is being explored and pursued both legislatively and through ballot initiative processes.

On Wednesday—during the first part of the two-day federal event that saw nearly 4,000 registrants across 21 time zones—NIMH Director Joshua Gordon stressed that his agency has “been supporting research on psychedelics for some time.”

Tune in today and tomorrow for the @NIH workshop on Psychedelics as Therapeutics, which will examine findings on psychoplastogens for treating depression, post-traumatic stress, and substance and alcohol use disorders. https://t.co/Qzxte5xJt9

— Joshua A. Gordon (@NIMHDirector) January 12, 2022

“We can think of NIMH’s interests in studying psychedelics both in terms of proving that they work and also in terms of demonstrating the mechanism by which they work,” he said. “NIMH has a range of different funding opportunity announcements and other expressions that are priorities aimed at a mechanistic focus and mechanistic approach to drug development.”

Meanwhile, Volkow also made connections between psychedelics and the federal response to the coronavirus pandemic. She said, for example, that survey data showing increased use of psychedelics “may be a way that people are using to try to escape” the situation.

But she also drew a metaphor, saying that just as how the pandemic “forced” federal health officials to accelerate the development and approval of COVID-19 vaccines because of the “urgency of the situation,” one could argue that “actually there is an urgency to bring treatments [such as emerging psychedelic medicines] for people that are suffering from severe mental illness which can be devastating.”

But as Volkow has pointed out, the Schedule I classification of these substances under federal law inhibits such research and development.

The official has also repeatedly highlighted and criticized the racial disparities in drug criminalization enforcement overall.

Delaware Lawmakers File New Marijuana Legalization Bill With Key Equity Revisions

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Lawmakers in Virginia Disagree on Cannabis Conviction Re-Sentencing

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Adult-use cannabis sales could begin next year in Virginia, but lawmakers in the commonwealth remain at loggerheads over what to do about individuals currently incarcerated on pot-related charges. 

The Virginia Mercury reported that a committee of state Senate and House members “tasked with making recommendations for the legislative session that begins Wednesday concluded its work this week with a proposal to begin recreational sales in 2023—a year earlier than initially planned,” but those lawmakers “said they ran out of time to reach an agreement” on the subject of re-sentencing for cannabis convictions.

The current state of play in Virginia looks quite different than it did last spring, when a Democratic-controlled general assembly passed a bill that made Virginia the first state in the south to legalize recreational pot. 

Virginia’s Democratic Governor Ralph Northam signed the bill into law, hailing it as a new day for criminal justice in the commonwealth.

“What this really means is that people will no longer be arrested or face penalties for simple possession that follow them and affect their lives,” Northam said at the time. “We know that marijuana laws in Virginia and throughout this country have been disproportionately enforced against communities of color and low-income Virginians.”

Last week, as lawmakers convened in the capital city of Richmond, the GOP officially assumed control over one-half of the general assembly. And on Saturday, the Republican Glenn Youngkin was sworn in as the new governor of Virginia. 

The recommendation from the Cannabis Oversight Commission to begin cannabis sales next year came last week ahead of the opening of the legislative session.

Youngkin said in an interview earlier this month that he “will not seek to overturn the law on personal possession,” but the governor-elect—who defeated the Democrat Terry McAuliffe in November—balked on the subject of pot sales.

“When it comes to commercialization, I think there is a lot of work to be done. I’m not against it, but there’s a lot of work to be done,” Youngkin told Virginia Business. “There are some nonstarters, including the forced unionization that’s in the current bill. There have been concerns expressed by law enforcement in how the gap in the laws can actually be enforced. Finally, there’s a real need to make sure that we aren’t promoting an anti-competitive industry. I do understand that there are preferences to make sure that all participants in the industry are qualified to do the industry well.”

The subject of how to handle individuals currently serving time for cannabis didn’t come up in that interview, nor was it addressed by the legislative committee last week.

The Virginia Mercury reported that the “Virginia Department of Corrections says 10 people are currently serving sentences in which the most serious offense was marijuana,” and that in “all of the cases, the people were convicted of transporting five or more pounds of marijuana into the state.”

“All 10 are expected to be released in the next six years, according to the department, which presented the data Monday to the assembly’s Cannabis Oversight Commission,” according to the report. “Another 560 people are serving sentences partially related to a marijuana offense but have also been found guilty of more serious offenses.”

In the interview with Virginia Business earlier this month, Youngkin did discuss the potential economic windfall from legalization, particularly for minority communities.

“I am all for opportunities for minority-owned businesses, women-owned businesses [and] military-owned businesses,” he said. “We also have to make sure that they have the capabilities to compete and thrive in the industry. So, I think there’s work to be done. All of that will be on the table. Again, I don’t look to overturn the bill, but I think we need to make sure that it works.”

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Colorado Hits New Record with $423 Million in Annual Revenue From 2021

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The state of Colorado is reporting a new record amount of revenue collected during 2021, including update sales data in overall tax and fee revenue collected since 2014 when legal sales began.

The Colorado Department of Revenue (DoR) announced on January 11 that the state has made a new record with total annual cannabis sales. “New record alert! In 2021, Colorado collected over $423 million in revenue from marijuana sales (compared to the previous record of over $387 million in 2020). Colorado also surpassed $2B in tax and fee revenue and $12B in marijuana sales to date,” the agency wrote on its social media pages.

A detailed press release shared that monthly data for December 2021 reached $30,609,563 in tax and fee revenue (with a total of $423,486,053 between January and December 2021) and $2,018,933,005 since February 2014.

Similar in cannabis sales, the latest data revealed $158,462,549 was collected in November (with a total of $2,060,952,959 collected between January and November 2021) and a massive total of $12,039,747,032 collected since legal sales began in January 2014.

These figures are based off of the state sales tax (2.9 percent), cannabis retail sales tax (15 percent) and retail cannabis excise tax (15 percent). The DoR notes that for cannabis sales data, the official sales figures won’t be released until sometime in February 2022.

Sales data from October, November and December were reported to have decreased, with both cannabis sales and prices dropping below the usual rate. The price of smokeable flower per pound in the last three months of 2021 dropped by 28 percent ($1,316 to $948, according to Westword) in reference to the average market rate (AMR). In comparison, the AMR for the end of 2020 reported $1,721 in price per pound.

The states of Washington and California, however, have collected $3 billion and $3.1 billion in tax revenue, compared to Colorado’s newly achieved $2 billion. Of course, Washington’s sales tax is up to 46 percent in certain regions, and California’s sales tax reaches up to 38 percent. Colorado’s tax percent is the third highest in the country.

According to Marijuana Policy Project Policy Director Karen O’Keefe, Colorado’s cannabis industry is more consistent, which leads to steady flow of funds for the state. “When you have that kind of funding, economists say you have what’s called a multiplier effect, where you not only have the initial investment in the stores, the jobs and the tax revenue, but then that money is in people’s pockets who spend it again,” O’Keefe told Westword. “So it’s as if each dollar is two or three dollars, which is the way economists usually look at it.” She also notes that this long-term investing has led to the creation of 40,000 jobs and over 1,000 Colorado businesses.

“Some of the more recently taxed states are focusing on specifically investing a good chunk of the revenue in communities that have borne the brunt of marijuana prohibition and that have had disproportionate marijuana arrests,” O’Keefe continued. “You’ll just continue to see more tax revenue, more people working in the cannabis industry, operating cannabis businesses.”

Colorado’s cannabis industry is thriving in many other ways overall as well. At the beginning of the year, Governor Jared Polis signed an executive order to pardon 1,351 cases relating to cannabis possession convictions of two ounces or less. Psychedelic decriminalization is also ramping up in Colorado, with two potential ballot measures being proposed through New Approach PAC. One bill proposes legalization of multiple different psychedelic substances such as ibogaine, DMT, mescaline, psilocybin and psilocin, whereas the other bill focuses just on psilocybin and psilocin.

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