Bummer! For every dollar you spend on cannabis in California, you may have to pay another 35 cents to the government.
The tax man’s grab on ganja proceeds has come into full focus since legal sales started in January, and the sticker shock over the price of pot has filled social media with a mix of outrage and confusion over just what’s driving up the cost of cannabis.
“Weed being hella taxed,” wrote pymt408.
While marijuana taxes stand alone in the world of so-called “sin taxes” because they vary among cities and counties, an analysis by this news organization found the cumulative tax on legal weed is more than triple the tax on wine and beer, which is typically about a dime on the dollar. For cigarettes, on the other hand, the total tax rate is more than 80 percent.
Why are these guilty pleasures — all derived from plants — taxed at such vastly different rates? The answers are entwined in a complicated mix of tax policy, politics, public health and safety aimed to influence each products’ impact on society at the cash register.
In California’s grand experiment with cannabis legalization, finding that perfect “Goldilocks” zone for taxes has fueled the latest debate: Is 35 cents on the dollar too low or too high? If it’s too low, it will drive up use by youth and drive down local governments’ incentive to allow marijuana businesses to operate in their communities. If it’s too high, the whole industry will just stay in the black market — and legalization will fail.
“We were looking at the opportunity with marijuana legalization to create better public policy,” said Tamar Todd of the Drug Policy Alliance, who helped craft Proposition 64, which legalized weed and set taxes.
As tax rates go up, consumption goes down. But — unlike alcohol or tobacco — there’s still a thriving black market in cannabis. So while weed taxes must be high enough to create social change, they can’t risk driving people away to an illegal product.
An analysis of the tax rates of weed, alcohol and tobacco shows how much your bill can vary.
All three purchases incur the same sales tax rate of 7.5 to 9.5 percent, of course.
The big difference is state excise taxes — those special taxes placed on particular commodities in addition to the sales tax:
- Cannabis is taxed at 15 percent.
- Wine, on average, is taxed at about 0.25 percent.
- Beer, on average, is taxed at about 1.5 percent.
- Tobacco, on average, is taxed at more than a whopping 60 percent.
Unlike cannabis, wine, beer and tobacco are taxed at flat rates, not percentages. Wine’s 20 cents a gallon; beer is 20 cents a gallon; tobacco is $2.87 per pack. To compare them with cannabis, we went shopping for each product, then converted the excise taxes for each to percentages on the dollar.
There’s another big variable with marijuana: local taxes.
Cannabis is taxed by local cities and counties at rates of their choosing that generally range from 5 to 10 percent, but may reach 15 percent in places like Monterey County. Alcohol and tobacco don’t have local taxes.
And there’s yet another difference: cultivation taxes. Unlike grapes, hops or tobacco, cannabis is taxed out in the field.
While consumers don’t see it on their bill, farmers are taxed $9.25 per ounce for flower, $2.75 per ounce for leaves and $1.29 per ounce of fresh cannabis plant. And businesses have to pay a tax ranging from one to 20 percent of gross receipts, or $1 to $50 per square foot of marijuana plants. These taxes push up weed’s wholesale price, but it isn’t clear how much that adds to your retail bill.
While weed is illegal on the federal level, marijuana businesses still have to file federal income tax returns. And cannabis growers can’t deduct their expenses from their taxes, unlike alcohol or tobacco farmers. A federal tax code prevents any sort of business write-offs for those dealing with illicit substances. In contrast, mainstream agricultural businesses have many special deductions and sales tax exemptions not allowed for cannabis, ranging from tractors and solar panels to land costs such as fences, roads and wells.
It’s true that cannabis products get a break on federal taxes; there’s no federal excise tax. But federal taxes don’t add much to the price of wine and beer — only about 1.5 percent and 3 percent, respectively. They add about 23 percent to cost of your tobacco product.
That’s unlike alcohol and tobacco taxes, which have been fiercely fought by industry lobbyists.
The alcohol industry spent nearly $3 million in California in 2010 on political donations and lobbying, the most recent year that data is available, according to the watchdog group Alcohol Justice.
What it got in return included defeats to major state and local public health proposals.
Big Tobacco also has fought tax hikes on their products, less successfully.
After defeating efforts to raise California’s tobacco tax in 2006 and 2012, the industry lost a fierce campaign by health advocates in 2016 to raise taxes by $2 per pack. Tobacco companies poured in more than $70 million to fight the tax hike. Smoking is the leading cause of preventable death in California.
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So what’s this all mean to the price of your pot?
If you buy $450 of weed, you could see an additional $112.50 added on to your receipt for the 15 percent state excise tax ($67.50) and 10 percent city tax ($45). That pushes your bill to $562.50.
That’s before state and local sales taxes — 7.25 to 9.25 percent — are calculated. Yes, you’re taxed on taxes.
When totaled, taxes on your product will likely range from 32.25 to 34.25 percent. If you’re in Monterey or another high-tax region, it’s closer to 37 percent.
Depending on where you buy weed, you may not see the state’s excise tax itemized on your receipt. That’s because some dispensaries pass on the whole tax to the consumer, and add it at the bottom of your bill, while others absorb part of the cost.
The architects behind Prop. 64 said they tried to strike a delicate balance, but the early results are frustrating local governments, dispensaries and especially buyers.
“I would love to see prices come down for the end user,” said Khalil Moutawakkil of the Santa Cruz-based KindPeoples dispensary. “That is not just a feel good thing. We want to see the success of regulation.”
“Let’s encourage consumers to step into the regulated market — and we can slowly increase taxes over time, without scaring people off.”
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