California lawmakers, working until the final hours of the year’s legislative session, approved several cannabis-related bills that will directly benefit cannabis operators in the state. Here we’re discussing California AB 1872 and how it will freeze some state tax rates until July of 2021. For our take on Senate Bill 67 click here.

California AB 1872: Tax relief for cannabis operators

High tax rates at the state, and to a degree the local level, have certainly played a role in hindering the licensed market’s growth here in California. Last fall, the California Department of Taxation and Fee Administration announced hikes on cultivation and excise taxes effective on January 1 of this year that many in the industry found to be particularly onerous. With passage, operators will be receiving a bit of reprieve for the next year. Here’s what it entails:

• Prohibits the California Department of Tax and Fee Administration from adjusting the markup amount during the period beginning on or after the operative date of the bill, and before July 1, 2021.
• Prohibits the cultivation tax rates that are imposed in the 2021 calendar year from being adjusted for inflation unless the adjustment is for an inflation rate that is less than zero.
• Provides that beginning January 1, 2023, the rates imposed for the previous calendar year shall be adjusted by the department annually for inflation.
• Prohibits the Board of State and Community Corrections from making grants to local government that ban both indoor and outdoor commercial cannabis cultivation or that ban the retail sale of cannabis or cannabis products.

So what does it mean? As our own Juli Crockett explained in an email: “While greater tax repeal and reform is no doubt desperately needed, this welcome news at least portends that insult will not be added to injury this year.”

As for that last bullet point above? We think it’s a really savvy move by the folks in Sacramento. As revenues for towns dry up across the state due to Covid, we’ve seen more and more municipalities –such as: Corona and Concord– begin to consider opening up to adult-use cannabis as a source of tax revenue to help replenish local tax coffers. By prohibiting grants to local governments who do not allow indoor and outdoor cultivation OR retail sales, the state is further incentivizing towns to open up to commercial cannabis operations.

What doesn’t it do? Well, speaking of local governments. This bill is only at the state level. Municipalities can still set their own tax rates for cannabis-related vagaries as they see fit. As we’ve discussed in the past, local tax rates across the state are fairly disparate. Also, there’s a lot of uncertainty for how local taxes are interpreted and applied to operators not from that area who are doing business. This does not impact local taxes directly.

Have questions about how the tax freeze can help your business? Curious about anything else related to cannabis operations in California? Get in touch with MMLG today.