Lawmakers and State Treasurer Announce Legislation to Combat Cannabis Black Market and Support Licensed, Regulated Market

Monday, January 28, 2019

(Sacramento) - Assemblymember Rob Bonta (D-Oakland) introduced AB 286 which will fight the illicit black market of cannabis by encouraging consumers to purchase the product from licensed and regulated businesses. This bill would reduce the price disparity between legal cannabis businesses and black market sources.

AB 286 will reduce existing state taxes on licensed cannabis for three years as California’s emerging cannabis industry gets established.

“The black market continues to undercut businesses that are complying with state regulations and doing things the right way,” said Bonta. “AB 286 will temporarily reduce the tax burden on these licensed operators to keep customers at licensed businesses and help ensure the regulated market survives and thrives. This very strategy has been shown to actually increase overall tax revenue in other states.”

 

“Right now the illicit market is dominating California’s cannabis industry,” said Assemblymember Tom Lackey (R-Palmdale). “These are bad people who are making our communities unsafe.  We need to give the good guys a chance to succeed otherwise our one chance at creating a regulated industry will be compromised.”

An identical bill (AB 3157) was introduced in 2017 by Assemblymember Lackey. That bill passed two committees with strong support but was held in Assembly Appropriations.

“We are helping legal Cannabis businesses with their transition into the marketplace, just like we would for any startup industry,” said Treasurer Fiona Ma, who is a sponsor AB 286.

“As the Chair of the Assembly Public Safety Committee, I am concerned about the prevalence of the illicit cannabis market,” said Assemblymember Reginald Jones-Sawyer (D-South Los Angeles). “The voters and the Legislature have spent time and careful consideration in drafting regulations that ensure the health and safety of Californians.  Law abiding businesses have spent time and resources to become compliant with cannabis regulations, yet are struggling to compete with the illegal market because they can offer a cheaper product to consumers. This measure is crucial to helping the legal cannabis market grow in California and rewarding businesses that play by rules.”

“As we continue to regulate the legal recreational and medical cannabis industry, continuing the work that was begun in 2015, it is vital that licensed businesses are not undercut by the black market,” said Assemblymember Ken Cooley (D-Rancho Cordova). “We need to be creative in helping to incentivize businesses to stay in the legal marketplace. Lowering the tax rate is one tool we can use while also leveraging better enforcement against bad actors so that consumers and patients have a safe and legal product.”

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.  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.  Washington saw an exponential growth in cannabis tax revenue after it simplified its tax structure and reduced its rates—increasing from $13.4 million in June of 2015 (final month of initial tax rate) to $33.1 million in April of 2017.

“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.

AB 286 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 2022 after California’s regulated market has matured and has been fully implemented. The primary goal of the measure is to reduce the size of the state’s black market for cannabis and take money out of the pockets of criminals.

Assemblymember Rob Bonta represents the 18th Assembly District, which includes the cities of Oakland, Alameda, and San Leandro and is the Assistant Majority Leader.

Below are links to audio of Assemblymember Bonta and the entire news conference which included remarks from Assemblymembers Tom Lackey, Ken Cooley, Reggie Jones-Sawyer and State Treasurer Fiona Ma:


Opening remarks from Assemblymember Bonta at today’s AB 286 news conference.
 

 

Assemblymember Bonta says AB 286 implements the goals of the voters when they approved Prop 64. (:15)
 

 

Assemblymember Bonta says it’s common sense to help the businesses that are following state  regulations. (:24)
 

 

The entire AB 286 news conference. (24:37)