California regulators announced on Thursday that taxes paid by the state’s licensed cannabis business will increase on New Year’s Day, despite calls to ease the burden on an industry struggling to compete with a thriving illicit market.
In a special notice from the California Department of Tax and Fee Administration, the state announced that cannabis cultivation taxes would be raised by more than 4%, reflecting an adjustment for inflation as required by state law. The tax on an ounce of dried cannabis flower will rise from $9.25 to $9.65, a jump of 4.3%
The tax levied on dry cannabis leaves will go up from $2.75 to $2.87, which is also a 4.3% increase. The tax on an ounce of fresh cannabis plant material will rise to $1.35 from $1.29, a jump of 4.6%.
The notice also revealed an increase in the state’s cannabis markup rate from 60% to 80%. The mark-up rate — the average difference between the wholesale cost and the retail selling price of cannabis and cannabis products — is used to determine the state excise tax on cannabis products. Regulators are required to recalculate the cannabis mark-up through an analysis of statewide market data every six months.
The increase in taxes comes despite the burden already borne by licensed businesses struggling to compete with a continuing unregulated market, which is estimated by BDS Analytics to be worth $8.7 billion per year in California, more than twice as much as the regulated market.
Industry Already Facing High Taxes
Phil Blurton, the owner of All About Wellness, a cannabis dispensary in Sacramento, said earlier this week that it’s difficult to compete with unlicensed operators.
“Our city license now is