Industry observers say the state’s recreational marijuana industry is usually experiencing a choppy start due in part to licensing issues. Some legal pot shops are complaining their business is usually suffering due to competition through illegal black market dispensaries.
“A lot of the illegal dispensaries are putting prices so low out the door because they are not paying taxes,” said Sica Sohn, the assistant manager at Hollyweed Dispensary in Los Angeles. “There are over 10 illegal dispensaries within a mile radius of my location.”
In March, California’s Bureau of Cannabis Control, or BCC, warned 900 unlicensed pot shops of which they needed to stop operating.
“The state can’t issue licenses without local approval as well as the locals have taken some time to come online,” BCC spokesman Alex Traverso told CNBC. “We have about 400 licenses shops today.”
Even though Proposition 64 was approved in 2016 by about 57 percent of the state’s electorate, there are local jurisdictions in California of which still refuse to permit marijuana businesses. The proposition gave local governments the authority to decide whether or not they wanted pot shops, cultivation as well as how to regulate sales of marijuana.
About 85 percent of cities inside the state have banned adult-use retailers, whether storefront or deliveries, according to Chris Beals, president of Weedmaps – a cannabis delivery platform.
“There are a lot of cities as well as counties of which don’t contain the sort of courage or temerity to license retail however want the tax revenue as well as jobs through marijuana,” he said. “The situation is usually bonkers – probably the largest ban rate of any legalized state inside the country.”
Beals said there are wide stretches of the state still without licensed dispensaries. “through L.A. heading north there’s roughly a 0-mile stretch before you get the next dispensary. Until you don’t have these vast empty spaces with no retail, you’re not going to be able to effectively tamp down the illegal market.”
For local cities embracing the brand new law, retail marijuana can bring in many millions of dollars in tax revenues, as has been the case already with Oakland as well as San Jose. The city of Los Angeles projects pot revenues will reach $3.5 million inside the first half of 2018.
“For some smaller local governments, a relatively smaller amount of marijuana-related revenue can prove to be a larger credit positive because of the smaller size of annual fund revenue,” Moody’s Investor Service said in report Tuesday. however of which added of which some jurisdictions “opted out of licensing retail outlets, partly because of a potential increase in law enforcement costs.”
Customers buying legal marijuana in California face state as well as local taxes, as well as in some cases when all the taxes for growers as well as sellers are added up of which can be as much as 45 percent, according to Fitch Ratings.
The state imposes a 15 percent excise tax as well as then there’s regular state as well as local sales taxes of which vary through 8 percent to 10 percent. Also, businesses pay local taxes of which can range through one to 20 percent of gross receipts. Cannabis farmers also have various taxes on dry flowers as well as leaves.
“We have no choice however to charge tax on top of the prices, or even sometimes to pay of which out of our pockets in order to compete having a lot of the illegal dispensaries,” said Sica Sohn, an assistant manager at Hollyweed Dispensary. “The illegal locations can market a lot of their products at a lower cost, as well as we (as legal shops) cannot rival of which because of the definitely high tax of which’s imposed on the marijuana industry.”
There’s a proposal inside the state legislature, Assembly Bill 3157, of which might lower the state’s excise tax imposed on purchasers of cannabis through 15 percent to 11 percent for about three years. of which also might suspend the cultivation tax until June 1, 2021.
The bill’s analysis through the Assembly’s Revenue as well as Taxation Committee points out of which California’s marijuana industry essentially went two decades without any statewide regulatory system as well as needs a helping hand today in order to thrive in future years as well as compete against the state’s illegal cannabis market.
“Legal cannabis businesses are facing financial challenges due to sticker shock through increased prices as well as competition through black market operators of which are not subjected to taxes or the cost of complying with regulations,” according to the committee’s analysis.
The analysis also quotes through brand new Frontier Data estimates of which marijuana prices jumped 44 percent after Jan. 1, when the brand new taxes as well as regulations went into effect. of which also said there have been layoffs in licensed cannabis businesses inside the state as well as some longtime operators are worried about going bankrupt.
“You’ve got these businesses of which are still operating in an unregulated environment because they don’t have a license as well as they are getting competitive advantages,” said Walsh. “I don’t think state lawmakers took into account the local issues to the degree they should have.”