Recreational marijuana sales officially began January 1st in the state of California. With a market as big as California, marijuana tax revenue potential is extremely high, like beer sales level high. A recent state of the industry report performed by BDS Analytics estimates by the end of 2018, cannabis sales will reach $3.7 billion. Then by the following year, sales are predicted to top $5 billion. To put the comparison into perspective, IBIS World reports 2017 beer sales were $5 billion dollars.

Effect on the Market

California is the sixth largest economy in the world. Which means, that this new player in the cannabis economy could very likely increase prices. These price increases (potentially up to 15%) are initially only expected to impact product within the state due to a new excise tax on recreational sales. But with regulation, often comes the unintended consequence of a black market. Regardless of the price, there are always certain individuals who wish to deal without extra fees. Unfortunately, this is often unavoidable.

Extra Marijuana Tax Predicted to Make Landfall

Either way though, California will welcome the extra taxes collected through these recreational marijuana sales. $1.4 billion is expected to be collected by 2021, according to BDS Analytics. But at what expense will these taxes have on businesses? The argument is that unregulated marijuana yields the state zero revenue. Take, for example, an area like Oakland. When you add together county, state, and city taxes, the total rate hits 34%. So, the question many Californians are asking is whether having such a high marijuana tax rate is sustainable? Because that could be a critical factor in black market growth.

Affordability is Key

The rapidly expanding recreational market in California has also inadvertently impacted the medical marijuana sector. Ironically, through legalization, compassionate care programs are cutting back on their generosity.

With legalization came new regulations in California. Compassionate care organizations are now required to collect taxes on the market value of cannabis that they give to patients. Programs such as the Wo/Men’s Alliance for Medical Marijuana, in Santa Cruz, say that these new marijuana tax costs aren’t sustainable. And that the permit costs are simply too high for purchasing from legal growers.

The California Compassion Coalition wants a special license just for these types of programs. To be able to donate marijuana in California, organizations must have a specific license to do so. Licenses such as these run into the thousands of dollars. A more affordable license would offset required taxes.

Closing Time

With the looming threat of tax and permit requirements, compassionate care programs around the state of California are reassessing their role in the industry. Many of these care programs actually helped build the foundation for today’s thriving cannabis market. But closure might not have to be in the cards, quite yet. The Bureau of Cannabis Control, along with the Department of Food and Agriculture and Department of Public Health are revisiting the new regulations to assess potential funding assistance.

Weed for Warriors and the Caladrius Network are two compassionate care programs currently operating in the state. While the former group assists veterans suffering from PTSD, pain, and traumatic stress, Caladrius helps children with deadly forms of epilepsy.

Nothing is Free

Care groups give medical cannabis to low-income patients for free. Then every donated ounce gets hit with a marijuana tax. And currently, the state charges taxes on the market value of the product versus the actual cost. The California Compassion Coalition, a group rallying against regulatory agencies, made such a tax change request at a recent subcommittee meeting.

I Need to See Some ID

There is a partial way around the tax burden: obtaining a state-issued medical marijuana card. Having one saves the patient taxes when they purchase – more so than purchasing marijuana recreationally. But care groups say the wait to acquire a card is too long. And these $100 cards may not be a practical purchase for many care program participants. The result: few people get the cards. And until recently, a doctor’s recommendation was sufficient to obtain cannabis from care groups. But with the newly implemented taxes, state-issued medical cards save the most money.

Leave the Clairvoyance Up to Us

Laws change, don’t get caught unawares and don’t needlessly lose revenue. Pinnacle Consultation can help you manage every financial aspect of your cannabusiness. Streamline with Pinnacle and let us be your experts in compliance, accounting, training, operations, and more. From creation, to development, to operations, and everything in between, partner with Pinnacle. Schedule a consultation today or call (719) 330-5301.