Legislative Analyst’s Office (LAO) Report to Eradicate the Illicit Market by Lowering Marijuana Taxes

Legislative Analyst’s Office (LAO) Report to Eradicate the Illicit Market by Lowering Marijuana Taxes


An independent state agency in California released a report on the marijuana tax system in the state. The report recommends a shift in the tax system, which would lower marijuana tax rates in efforts to address the illicit market and discourage the youths from using marijuana, as well as generate sufficient revenues enabling the state to oversee the legal marijuana industry. 

During the upcoming legislative sessions, lawmakers will hold heated debates on whether to lower marijuana taxes in the state, industry watchers suggested. 

Some of the dramatic policy changes suggested by the Legislative Analysts Office (LAO) report include:

  • Eradicating the weight-based cultivation wholly.
  • Replacing the excise tax with a tiered percentage based on product sales or product potency.
  • Shifting the current tax collection system (collection by distributors) with one where the retailers collect marijuana-related taxes at the point of sale to consumers. 

California Cannabis Control Association (CCIA) issued a statement and said that LAO’s recommendations are similar to the ones they have been advocating for, for more than three years. 

CCIA further noted that some of their recommendations included comprehensive tax reform that will encourage consumers to buy regulated marijuana products, increase, stabilize revenues within the state and ease of administration, and to adherence to rules.

Tom Lackey, who is a Republican and a member of State Assembly, said that legislators’ aim should be to undercut the black marijuana market when legislative sessions resume in January.

Lackey further said that unless the illicit market is eradicated in California, then it would be impossible to achieve the other two goals recommended by LAO, increase in revenue and to prevent marijuana consumption among the youth. 

The current tax structure is killing the cannabis sector, and it is high time we focus on simple and feasible solutions, said Lackey.

The LAO’s report was issued barely a month after California marijuana regulators issued a statement and said that marijuana would be subject to state taxes starting 1st January 2020. 

The report also cautioned that lowering the taxes could also have negative impacts and positive impacts on the state. Lower taxes could lead to the expansion of the legal market and the reduction of the black market. It could also lead to reduced revenue, which would not be sufficient in funding the mandated expenditures under the state’s law. 

The report estimated that the tax to be collected in the financial year 2021-2022 should be approximately $350 million to cover the state’s budgets and, by lowering the taxes, California would not be in a position to set the set target.

LAO suggested for California to use the tax system similar to the one used by the Canadian government whereby they tax marijuana products based on their potency. The tax rate for a milligram of THC ranges between $0.006 and $0.009. If the lawmakers want to undercut the black market, they should adopt the lower range, but if they’re going to prevent youths from using weed, they should select the higher range. 

LAO also noted that even if the state lowers the taxes, the price for legal pot would still be higher than that of illegal because the legal market has to pay compliance expenses and local taxes. 

A democrat from Oakland, Rob Bonta, who is also a member of State Assembly, wrote on Facebook and said that for the marijuana industry in California to survive and thrive, the state must lower and simplify the taxes imposed on pot products.

During the upcoming legislative sessions, Lackey and Bonta will do their best to have the marijuana tax reform approved as soon as possible because the pot market is heading in the wrong direction.

The United Cannabis Business Association issued a statement and said that the LAO’s recommendations are an appropriate foundation of the issues that would help steer buyers away from the black market. 

Legislative advocate Max Mikalonis said that the report could have given a more profound acknowledgment of the size of the illicit market and how the prices in the legal market do not compare with the black market.

 Mikalonis also noted that the black market is three-times more prominent than the legal market. However, the LAO’s report gives him hope that the new marijuana tax reform could be approved in 2020.



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