High taxes, outlaw competitors make it tough for legal operators to make a buck

As year two of legal cannabis sales in California comes to a close, shoppers are still more likely to buy marijuana from illicit sellers than from state-sanctioned stores that pay taxes and test their products for safety.

California’s 7,000 licensed cannabis businesses — and the state’s tax revenue — are feeling the pinch.

Prominent cannabis companies that a year ago were growing aggressively have, in recent months, laid off hundreds of workers. They say hefty taxes, onerous regulations and competition from a thriving illicit market are forcing them to scale back operations.

Now the industry, which is already operating under effective tax rates of up to 70%, is bracing for another hit. Starting Jan. 1, marijuana retailers will pay 12.5% more in taxes than they do now, while cultivator taxes will go up more than 4%.

The unexpected move announced last month is being described as shortsighted by many in the industry. Licensed business owners point out that their outlaw competitors — retailers and others who haven’t received state licensing — can sell tax-free cannabis for a fraction of the price.

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