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US (CA): Proposed cannabis tax overhaul to save collapsing industry

In 2016, there was much celebration as California voters approved Proposition 64, legalizing cannabis. But now, advocates say the cannabis industry has fallen on hard times and in his budget presentation, Governor Gavin Newsom pledged his support to try to save it.

When Prop 64 legalized cannabis, it signaled acceptance of the industry and promised a boon to state and local tax bases and the end of the illegal market. But it hasn’t actually worked out that way. Most local governments have been reluctant to approve retail sales outlets and now, producers say taxes are eating them alive. So Newsom’s budget comments came as a welcome surprise.

“It is my goal to look at tax policy to stabilize the market,” he said. “And at the same time, it is also my goal to get these municipalities to wake up to the opportunities to get rid of the illegal market, the illicit market, and provide support in a regulatory framework for the legal market.”

Currently, cannabis is taxed at $162 per pound cultivated. That was OK when it sold for about $1,200, but the price has now dropped to as low as $300 dollar per pound, while the tax remains fixed. “You’re looking at 50 percent of the cost of a pound of cannabis–an additional 50 percent of that is a tax!” said Amber Senter, a cannabis entrepreneur producing products in Oakland. She said she likes being able to sell out in the open, in the legal market, but understands why many are still choosing to operate outside the law.

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