Dear Governor Newsom: 

As you prepare to address tax relief in your forthcoming Trailer Bill we, the undersigned cannabis businesses and organizations, respectfully urge you to not allow the cannabis market that pioneered our nation’s industry to further descend into bankruptcy. 

On December 17th, 2021, we sent you a letter detailing our dire situation to which you responded that overhauling cannabis taxation and increasing access to retail would be among your top priorities. With your recent decision to remedy the failures of Prop 64 in your 2022 Trailer Bill, the fate of our distressed industry now lies solely in your hands. We beg you to heed our cries and get it right. 

A recent report from the Reason Foundation surveyed various local tax regimes and found that when combined with State taxation the effective tax rate ranges from $42.00 to $90.00 per ounce of cannabis, which is more than the wholesale production cost of $35.00. With taxation being greater than production costs, there is one and only one operator within California cannabis for whom the industry has been lucrative, and that is the State. 

Unreasonably high cumulative taxation throughout the supply chain is already being externalized onto consumers who are then driven back to the unregulated marketplace. As a result, over five years since California voters approved the Adult Use of Marijuana Act, illicit sales still constitute two-thirds of the cannabis marketplace. 

Revenue neutrality, a frequently suggested remedy to the current inappropriate taxation, is not a workable solution but a mistake of epic proportions, a cruel redistribution of an obligation which is already driving our industry into bankruptcy. Shifting the tax burden from one license category to another will make no difference to the retail price and will not make legal operators more competitive. On the contrary, doing so would all but guarantee that cannabis tax revenue will continue to decline until Californians cannot meaningfully benefit from it at all. We cannot accept tax revenue neutrality.

In the spirit of solutions, collaboration, and progress, we propose the following: 

• Permanent suspension of the cultivation tax;
• Reduction of the excise tax to 5%, and collected at the consumer point of sale;
• Permanently suspend the excise tax on social equity licenses;
• A commitment to using budget surplus and general fund monies to subsidize shortfalls to critical programs during the relief period.

Substantial support for a solution like this exists, as evidenced on May 4th, when a bill containing most of these elements, SB 1281 (Bradford) passed committee with cannabis industry support more than doubling those listed in the legislative analysis while opposition remained the same.

Failure to meaningfully reform the industry’s tax structure will create an avalanche of adverse consequences. These losses will include the elimination of thousands of union jobs as businesses close leaving working-class people unemployed; the shuttering of social equity businesses, the continued risk of consumers accessing untested, contaminated products; the proliferation of dangerous cartels; and the lost opportunity to use cannabis tax revenues to subsidize critical services like childcare vouchers, programs for the working poor, and youth harm reduction.

You have eternally been our champion, and your support has never wavered. Please do not desert us now. Your leadership is essential if the Cannabis Industry is to survive. Please end the cultivation tax, temporarily reduce the excise tax, and ensure that going forward, cannabis taxes are reasonable and appropriate.

We are the cannabis cultivators, manufacturers, distributors, testing laboratories, retailers and consumers of California, and we stand ready to work with you to ensure the survival of our legal cannabis market.

More than 200 cannabis companies and brands have signed the petition, including leading companies like:

Norcal Cannabis Co., Papa & Barkley, Flow Cannabis Co., Coastal Sun, Nabis, Canndescent, Shryne Group Inc, Glass House Brands, KIVA, 4th Movement, HERBL, National Cannabis Industry Association, The Venice Cookie Co., Milo Group, The Higher Path, Cookies Oakland, Good Farmers- Great Neighbors, Pure Beauty, SPARC, ROVE, LA PCG, Americans for Safe Access, Icanic, Jetty, BPG, Guild Extracts, California Cannabis Manufacturers Association, Buddies, The Apothecarium, Catalyst, Elkhorn Ranch, Henrys Original, Mammoth Distribution, Lifted Organics, Human Nature PR, THC Design, Riverview Farms, Meadow, Posibl, Vicente Sederberg, Beija Flor, Zen Brands, Pro Farms, Sava, Rise, Big Rock, Brite, Dao Mastery, Fire King, Equity Trade… and many more. Join the movement?

(link to first petition)