California Announces Planned Changes to Tax and Regulatory Scheme
By Lauren Mendelsohn, Esq.
January 10, 2020
On Friday, January 10, 2020, California Governor Gavin Newsom announced his budget proposal for 2020-2021, which included some major changes related to cannabis industry taxation and regulation. The proposal seeks to consolidate California’s three cannabis licensing agencies (the Bureau of Cannabis Control, the Department of Food & Agriculture, and the Department of Public Health) into a single Department of Cannabis Control by July 2021. The proposal also seeks to modify how both the cultivation and excise taxes are collected, in an effort to alleviate some of the burden currently faced by operators, and leaves open the possibility that additional tax reforms will be considered.
The message that was sent out by California’s cannabis licensing agencies is included below:
To All Interested Parties,
We are proud to share Governor Newsom’s budget proposal for cannabis industry regulation and taxation, announced by the Governor today.
Regulatory Simplification:
In an effort to improve access to licensing and simplify regulatory oversight of commercial cannabis activity, the Administration plans to consolidate the three licensing entities that are currently housed at — the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health — into a single Department of Cannabis Control by July 2021. Establishment of a standalone department with an enforcement arm will centralize and align critical areas to build a successful legal cannabis market, by creating a single point of contact for cannabis licensees and local governments. The Administration will provide more details on this proposal in spring 2020.
Tax Simplification:
Governor Newsom also proposes simplifying cannabis tax administration by changing the point of collection.
The proposed changes move the responsibility for the cultivation excise tax from the final distributor to the first, and for the retail excise tax from the distributor to the retailer. Moving the incidence of this tax to the retailer will eliminate CDTFA’s requirement to estimate product mark-up and set wholesale tax rates. The changes will reduce the tax collection burden on the cannabis industry and simplify the tax collection process.
Further, the Newsom Administration, in consultation with the industry and stakeholders, will consider other changes to the existing cannabis tax structure, including the number of taxes and tax rates to simplify the system and to support a stronger, safer legal cannabis market.
Allocation of the Cannabis Tax Fund:
Pursuant to Proposition 64, expenditures are prioritized for regulatory and administrative workload necessary to implement, administer, and enforce the Cannabis Act, followed by research and activities related to the legalization of cannabis and the past effects of its criminalization. Once these priorities have been met, the remaining funds are allocated to youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities.
The Budget estimates $332.8 million will be available for these purposes in 2020-21, and the structure of these allocations is unchanged from 2019-20:
- Education, prevention, and treatment of youth substance use disorders and school retention—60 percent ($199.7 million).
- Clean-up, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation—20 percent ($66.6 million).
- Public safety-related activities—20 percent ($66.6 million).
Thank you,
Lori Ajax
Chief, Bureau of Cannabis ControlRichard Parrott, Director
CalCannabis Cultivation Licensing Division
California Department of Food and AgricultureMiren Klein
Assistant Deputy Director
Center Environmental Health
California Department of Public Health
We will keep you updated on this story as it develops.
This information is provided as an educational public service and is not intended as legal advice. For specific questions regarding cannabis laws or obtaining a license in California, please contact the Law Offices of Omar Figueroa at (707) 829-0215 or info@omarfigueroa.com to schedule a confidential legal consultation.