California pot industry facing 'extinction event'

[TheProle]

California’s pot industry could be on the verge of an “extinction event,” with pot shops going out of business as they miss tax payments and sink under millions of dollars of debt.

Debt problems have plagued the industry for years — a 2022 report estimated that the industry was collectively sitting on over $600 million in debt — but a change in tax law that took effect this year has stakeholders worried the mounting debt bubble will finally become fatal. A San Francisco politician introduced a law this year in the state legislature that would crack down on pot businesses that don’t pay their debts.

State law recently shifted the burden for paying cannabis excise taxes from distributors to retailers, with the first tax payments due May 1. Retailers have historically had the most trouble paying their bills, and it appears that many shops lack the cash to pay their state excise taxes, according to new state tax data obtained by SFGATE.

https://www.sfgate.com/cannabis/article/california-pot-industry-facing-extinction-event-18104578.php

[Lovie777]

1. MJ will survive............

as it's business.

[yaesu]

2. Like any biz if you can't pay the bills it's time to close shop. I'm thinking

There may be too many shops, probably be a corporate consolidation which isn't good for the consumer but may save the product if demand is strong enough.

[former9thward]

5. There may be too many shops but the problem is fees and taxes on MJ in CA.

They are so high that shops just can't complete with the 'illegal' market and dealers.

[ProfessorGAC]

9. Not Here In Illinois

We're paying 60% of what we got underground 10 years ago.
Two weeks ago I bought an ounce of 28.2% THC, Sativa, for $160. That would have cost at least $270 back then.
Admittedly, we have med cards, so we don't pay that service fee, and that 20%. Still $192 for an ounce of high quality pot is still cheaper than the street.
BTW: for products over 35% THC, the tax goes up to 25%. But, at the 2 dispensaries to which we go, I've never seen product that high, except for resin.

[former9thward]

12. Post #6 below you breaks down the CA figures far better than I can.

[moonshinegnomie]

6. the problem is the tax rate

a 15% excise tax on top of a 8.25% sales tax plus any local taxes makes legal pot not competitive.

just using the california tax department numbers

$35 worth of legal pot ends up costing $54.
as opposed to illegal pot which is $35 or less

from the website


Excise tax calculation:

Selling price of cannabis product$35.00
Local cannabis business tax ($35.00 × 10%)$3.50
Delivery+ $5.00
Subtotal subject to excise tax$43.50
Cannabis excise tax ratex 15%
Excise tax ($43.50 × 15%)$6.53
Subtotal ($43.50 + $6.53)$50.03
The 15 percent cannabis excise tax rate applies to the subtotal of $43.50, which calculates to $6.53 of cannabis excise tax due for this example.

We can now calculate the sales tax for this transaction. Gross receipts for purposes of calculating the sales tax include the cannabis excise tax. Therefore, the subtotal of $43.50 and the cannabis excise tax due of $6.53 are added to calculate the gross receipts subject to sales tax.

Sales tax computation:

Subtotal ($43.50 + $6.53)$50.03
Sales tax ratex 8.5%
Sales tax ($50.03 × 8.5%)$4.25
Total due ($50.03 + $4.25)$54.28


https://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers

[TheProle]

8. Thanks for this breakdown

It gets to the crux of the issue.

[roamer65]

3. Revenue will decrease as the novelty of recreational MJ wears off.

A lot of shops formed during the boom will go bust.

That’s capitalism.

[Martin68]

4. Sounds like a lot of get rich quick schemes may have been poorly managed.

[rollin74]

7. CA screwed up by imposing insanely high taxes on legal cannabis

the illegal cannabis business is thriving in California

they should reduce the taxes on the legal industry ASAP. There is no way for legit businesses to compete under the current tax structure

[Johonny]

10. It's the federal laws killing it from what I read

Legally it can only be sold in California, but there's simply too much weed and not enough users. California could supply the country (perhaps the world but it can't be legally sold across state lines because it remains federally illegal. There is ample supply and too little demand thus why its failing. Sure lowering taxes would help, but it's the unplanned low price due to over supply that's the real problem.

[rollin74]

11. Yes. The federal law needs to be changed

cannabis never should have been listed as a controlled substance in the first place

[Mosby]

14. Tax in AZ is 25%

Dispensaries are doing fine.

[MichMan]

13. Can they seize the personal property of the owners and investors to collect the past due taxes?

I haver zero sympathy for those who want to collect the money coming in while evading paying the taxes they owe.

[IbogaProject]

15. Those taxes pile up

The marginal tax based markup of that $35 is 55%. That isn't economically sustainable, doubly so on a perishable product.