The legal marijuana marketplace in California is about to face a dilemma. While the state made it easier to access, it comes at a price — market prices possibly increasing by as much as 70 percent.
The Consequence Of Legalizing Pot
Ahead of the January sales, the California government is mulling a number of new policies including a 15 percent levy on all medical pot products. In addition, local governments are also planning to tax sellers and growers, which would eventually pass the cost to consumers.
The price increase should not come as a surprise, particularly to those who strongly pushed for the legalization of pot in California. The taxes, they pointed out, would be beneficial to the government. With the taxes from the new cannabis industry, the government projects tax revenue of as much as $1 billion annually.
However, many industry experts argued that high taxes and high prices of marijuana will just push buyers to purchase from illegal vendors.
"High tax rates raise prices in legal markets, reinforcing the price advantage of black markets," the global credit ratings firm Fitch Ratings reported. "California's black markets for cannabis were well established long before its voters legalized cannabis in November 2016 and are expected to dominate post-legalization production."
A Los Angeles-based medical marijuana cultivator and retailer Donnie Anderson shares the same sentiments. He suggested that the government should do more in cutting the cost, to benefit those in need of medical marijuana but cannot shoulder the sudden rise in prices.
Recreational marijuana will have a projected 45 percent increase in prices. About 15 percent will come from state excise tax and 7.75 to 9.75 percent from state and local sales taxes. State cultivation tax will be at $9.25 per ounce of cannabis flowers and $2.75 per ounce for leaves.
Killing Legal Retailers And Supporting Illegal Traders
The steep jump in prices will provide a thriving market for illegal traders and eventually kill off legal retailers and growers. As local government taxes add on to the expenses, many feel that their weeds will just become trash or compost.
At present, local growers can sell a trash bag of weed clippings to manufacturers for $50. When January comes, the leaves will now cost about $44 a pound.
To attract illegal traders to join the legal cannabis industry, Fifth District Supervisor Ryan Sundberg expressed that he is willing to draft an attractive tax scheme. Sunberg is also a board member of the medical marijuana ad-hoc committee of California Cannabis Voice Humbolt.