Cannabis Taxation: Let’s Do It for Our Children?

A new bill introduced on February 15, 2022 by State Sen. Michael McGuire from Healdsburg, California is facing significant resistance from multiple children’s advocacy groups because of its future effects on how cannabis will be taxed. Senate Bill 1074 seeks to amend Sections 34011 and 34012 of the Revenue and Taxation Code, effective immediately. The amendments change how cannabis is taxed in two different ways.

Under current law, Section 34011 imposes an excise tax on purchasers of cannabis and cannabis products at the rate of “15% of the average market price of any retail sale by a cannabis retailer.” If SB-1074 is approved as-is and takes effect, cannabis purchasers would see an increase in excise taxes starting July 1, 2025. The Department of Finance reports that it would determine the increase based on historical average values of quarterly cultivation taxes collected from the third quarter 2018 through the fourth quarter of 2021. An increase will take place on July 1, 2025 and July 1, 2026.

Senate Bill 1074 also proposes to remove the entirety of Section 34012 as of July 1, 2022. Currently, Section 34012 imposes a cultivation tax on all harvested cannabis. No cultivation taxes would be collectable after July 1 if the new bill passes. The immediate loss of this funding source motivated 152 different children’s advocacy groups to sign their name and support to a letter opposing the bill.

One of the arguments advanced in the letter is the significant negative impact it would have on children already living in poverty, many of whom are children of color. Many nonprofit organizations are said to rely on Proposition 64 funding to support programs for low income children. Nonprofit organizations including First Five Sonoma, First Five Marin and the Napa County Office of Education, were among the signatories to the letter.

On the other hand, Sen. McGuire has also been vocal about his reasoning for supporting the tax cuts. On Twitter, he has stated that “cultivation taxes are crushing small farmers throughout the North Coast and California.” His focus is on helping small cannabis farmers drowning under what he considers an unfair tax burden. Legitimate cannabis businesses in California are also experiencing unfair competition from the black-market.

The issues presented by both sides of the debate are significant. As of now, it is unclear how the legislature will vote on this important issue. Gordon Rees Scully Mansukhani’s Cannabis, Hemp and CBD group will continue to monitor this important legislation and will provide an update as to which position the legislature ultimately voted for and the impact that the vote will have on the interested parties.