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California agency eyes tax on marijuana by potency

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Social Links for Richard Morgan
Published Dec. 18, 2019, 5:09 p.m. ET

A California agency wants to scrap the state’s complicated taxes on marijuana in favor of a single levy that takes potency into account.

The pot-taxing proposal — which would make more-powerful varieties pricier — seeks to streamline the crazy-quilt of taxes that have materialized after California’s 2016 legalization of cannabis.

California’s Legislative Analyst’s Office, or LAO, made the recommendation in a report released Tuesday.

“Currently available information suggests that a potency-based tax in the range of $0.006 to $0.009 per milligram of THC could be appropriate,” the report concluded.

By milking users of high-potency weed, the agency said California could raise $350 million a year — the budget to fund all the pot-related programs now required by the state.

That would match the expected haul under current tax laws. California now has a 15 percent excise tax on legal pot, a 10 percent sales tax on nonmedical cannabis and a growers’ levy of $9.25 per ounce for dry buds or $2.75 per ounce for leaves.

Adding local taxes, which typically range from 5 percent to 10 percent, California’s effective pot tax often approaches 50 percent.

The state’s legal pot businesses blame the stiff markups for driving consumers to a thriving illicit market, which still accounts for about 75 percent of California’s cannabis sales.

The LAO — a nonpartisan government agency that has been advising California’s state legislature since 1941 — said its goals in the exercise were to discourage youth use and to undercut illicit market prices.

“If the legislature prioritizes reducing the illicit market, it may prefer a rate closer to the lower end of this range,” the LAO said of its per-milligram proposal. “If, on the other hand, it prioritizes raising revenues, it may prefer a rate closer to the higher end.”

After the California Department of Tax and Fee Administration announced a tax increase on marijuana last month, the California Cannabis Industry Association claimed the move left its members “stunned and outraged.”