The Governor Wants to Eliminate the Cultivation Tax. There’s a Catch.

Gov. Gavin Newsom proposed temporary tax relief for the state’s licensed cannabis cultivators on Friday as part of his historic spending blueprint for the next fiscal year. The effort has received mixed reactions, with some industry officials thanking the Governor and others calling it too little, too late.

The revised spending plan for 2022-2023 would finally eliminate the $161-per-pound cultivation tax. This is a big deal, but there are also big caveats. After three years, the tax burden would be shifted to the retail side. The excise tax would eventually increase from 15% to 19%. If the state doesn't bring in enough cannabis tax revenue for any reason — $670 million each year — the excise tax could be hiked up as soon as January 2024.

“All they are really doing is shifting some taxes around, and it’s not ever going to get to the customer,” Jerred Kiloh of the United Cannabis Business Association told the Sacramento Bee.

“It’s kicking the can down the road,” said Lindsay Robinson of the California Cannabis Industry Association.

There were positive reactions as well. Good Farmers Great Neighbors Policy Director Sam Rodriguez said he was “pleased that the governor has taken a leadership role in addressing the ills of the illicit market with a starting point on tax relief.” Good Farmers Great Neighbors, Precision Advocacy, and Reason Foundation recently conducted a study that found California could double its monthly cannabis tax revenue by eliminating the cultivation tax.

In addition to temporary tax relief, Newsom's revised budget proposal includes $20.5 million to establish a local jurisdiction retail access grant program. That funding is aimed at expanding licensed retail shops. Jurisdiction eligibility would be based on population size, number of existing permits, and equity programs.

The next step is negotiation with lawmakers. The California Legislature must sign off on a state budget by June 15.