High taxes spark sticker shock for cannabis customers in California

A picture recently posted to Instagram shows a receipt for a shopping trip to Cookies LA, a licensed marijuana store in Maywood.

The receipt shows that the shopper bought an ounce of high-end cannabis, the maximum allowed under state law and enough to roll perhaps 40 joints.

His pre-tax tab came to $450. After taxes, the final bill was $587.25.

That receipt, and the posting on social media, are signs of the wave of sticker shock being felt among cannabis consumers.

Many shoppers have been surprised by the tax rates that have taken effect since Jan. 1, when recreational cannabis sales became legal. Some of the receipts shared online include bright red circles around the tax line and are posted with hashtags like “#californiaisscrewingus” and “ididntvoteforit.”

The hefty taxes are also drawing complaints from some business owners and policy analysts who argue that the tariffs will keep the state’s massive black market for marijuana alive and well.

During a recent meeting in Sacramento, the state’s new Cannabis Advisory Committee agreed to discuss taxes at a future session. And Rich Miller, president of the American Alliance for Medical Cannabis, asked the state to consider reducing the tax rate for seniors and medical patients.

But Keith Humphreys, a psychiatry professor at Stanford University who studies marijuana policy, is urging the state not to cave to pressure to reduce taxes rates just a few weeks after the legal market opened.

“I hope the state holds its nerve because this problem — if it even is a problem — will correct itself,” he said.

Where the taxes go

All cannabis legally sold in California now comes with a 15 percent excise tax. On its own, that rate is in line with, or below, the tax imposed in most other states that have legalized recreational cannabis.

But in California, that excise tax is just part of the tax bill. Most California cities that allow marijuana stores have tacked on local taxes, typically 5 to 10 percent. In a few cities, the local rate is as high as 15 percent.  That’s in addition to the regular sales tax, which typically runs between 8 and 10 percent.

Bottom line: Medical marijuana consumers are generally paying at least 20 percent tax on every purchase, and recreational consumers are paying between a low of 28 percent and as much as 40 percent.

Here’s how that breaks down for that ounce of cannabis bought at Cookies LA in Maywood.

In the $450 sticker price, the store has already absorbed costs to comply with new state regulations and a tax on cultivators, which is $9.25 per dry-weight ounce of cannabis flowers, $2.75 per dry-weight ounce of cannabis leaves and $1.29 per ounce of fresh cannabis plant.

Of the $137.25 in taxes tacked onto that bill, the biggest portion, $67.50, is for the state marijuana excise tax. That revenue goes to drug prevention programs, environmental, cleanup, law enforcement and other dedicated causes approved under Prop. 64.

The Legislative Analyst’s Office predicted California could see $1 billion a year in revenue from the marijuana excise tax. Gov. Jerry Brown’s preliminary budget for the 2018-19 fiscal year anticipates a windfall of $643 million.

The next largest portion of taxes on the Cookies LA bill was $42.75 for state sales tax, with the rate in Maywood set at 9.5 percent. That revenue goes to local public safety, transportation and social services funds, plus the state’s general fund.

The final portion of the sales tax bill is $27 for the local city levy, set at 6 percent through a development agreement with Cookies LA. That revenue will fund Maywood city services.

That bill was much higher than the one Igor — a 35-year-old from Alhambra who declined to give his last name due to job and personal concerns — spent on his first recreational cannabis shopping trip.

Igor waited in a long line and paid $110 to buy infused mints, an infused chocolate bar and two different strains of loose cannabis flower this week at Los Angeles Patients & Caregivers Group. His tab included $21.81 in taxes.

“I knew it was going to be expensive. And I knew there would be a high tax. It did not bother me too much as I was just excited for this to be really happening in California,” he said. “It was important for me to support this new chapter in California history.”

He said he’s a light user, which means his purchase will go a long way. But down the road, Igor said he hopes to see prices drop as the market expands so that people on more limited and fixed incomes can have access to legal marijuana.

“I don’t think this should be something only the wealthy should enjoy,” he said.

Price drop coming?

The wholesale price of cannabis has been collapsing in states that have legalized marijuana.

In Washington, for example, Humphreys said an ounce of marijuana cost about $400 on the black market when the state launched recreational cannabis sales in 2014. The price of legal cannabis started to drop within three months, though, and it’s continued to plummet ever since. Today, he said it can run as low as $40 an ounce.

He expects the same thing will happen in California — perhaps even more more quickly than it dropped in Washington and Colorado, he said, since California eliminated a proposed 1-acre cap on marijuana farms. The state has already issued temporary licenses to more than 700 cannabis farms, with many more competitors expected over coming months.

“The price will go down really rapidly,” Humphreys said. “It will be much cheaper next year.”

And as the cost of marijuana drops, so will the taxes, since they’re set as a percentage of the sales price.

Mary Callahan, 61, of Twentynine Palms said she’s smoked marijuana off and on since she was 15. She just bought her first legal recreational cannabis at a store in Palm Springs, spending $96 for a vape pen, quality oil and one preroll joint.

“I actually thought the prices were great,” she said. “Better than street prices.”

She said she appreciated getting a breakdown of potency levels in the products she bought, too.

“I feel I am getting a quality product, sold by a very knowledgeable and helpful staff,” she said.

Rather than worry about prices and taxes being too high, Humphreys believes the bigger long-term concern is cannabis becoming too cheap. That’s not good for addicts or other vulnerable populations, he said. And it’s not good for businesses and states relying on the revenue.

In the meantime, he said, the fact that we’re even having this debate might be viewed as a good sign for the emerging legal cannabis industry.

“This means that marijuana businesses have truly arrived because now they’re complaining about taxes like every other business.”

This story originally appeared at TheCannifornian.com