Californians Learn That Raising Taxes on Marijuana Fuels Black Markets for Drugs

Tax rates on marijuana grown in California will rise in 2022, even though the Golden State’s black market is still the dominant retail sector.

Experts believe that around three quarters (75%) of all California marijuana sales are made by unlicensed sellers and not legal dispensaries. California voters approved the legalization of recreational marijuana cultivation in 2016. However, the implementation has been plagued by high taxes and harsh regulations.

One prime example is the New Year’s Day tax hike. California has a weight-based tax on marijuana cultivation. According to state legislators, the 2017 cultivation tax rate was tied with inflation in tax regulations. The cultivation tax rate will automatically increase if inflation increases.

Inflation increased in 2021 and it was not by a small degree. U.S. Bureau of Labor Statistics estimates that national consumer prices rose 6.8% in the period November 2020-2021. California’s new law will see cultivation taxes rise by 4.5 percent. Growers of cannabis plants will see their cultivation taxes rise from $1.35 per ounce to 1.41 per ounce. The cultivation tax is not included. There’s also a 15% excise tax and local sales taxes in the areas that permit dispensaries. A person attempting to legally buy marijuana in California can expect the price to balloon between 35–50 percent through tax add-ons, depending on the city.

This will obviously make it more difficult for legal sellers to compete on the black market. The fact that the tax rate has risen is absurd. It should not be considered a sign to tie any taxes to inflation.

The legal growers are rebelling and some have reportedly suggested withholding taxes from the state and asking for relief. This could be a good opportunity for them, considering the effort that local and state law enforcement agencies have put in to trying to end illegal marijuana grow operations. Rob Bonta, the Attorney General of Texas, boasted about an extensive multi-agency operation which resulted in the destruction of over 1.2 million marijuana plants. Bonta might also be interested in going after illegal growers protesting absurd state tax rates.

Bonta, before becoming California’s attorney-general was previously a Democratic assemblyman representing Alameda. He actually agreed back then with the marijuana vendors about how high California’s taxes were. He introduced legislation in 2019 that would have decreased the state’s excise and suspended the cultivation tax, until 2022. It did not make it to the committee stage. Bonta can now say that illegal growers cheat the state out millions in taxes dollars, but he is aware (or used to be able to see) that California’s tax rates are really what are at fault.

These marijuana regulations and taxes are so bad! These taxes and regulations are too high to be harmful. Los Angeles Times editorial board to thoroughly grasp—at least in this case—that oppressive government controls are what cause black markets. This Sunday’s editorial column by the board sounds at most partially similar to something that we would run at ReasonWe’d remove the demand for “ramping down enforcement”, but we’d probably also edit out the handwringing about the environmental impacts of illegal grow operations. This seems like a point that progressives and libertarians can use to their advantage. These areGiant drug busts happen somehow DiverseFrom ones that were launched over the last four decades by drug-war advocates):

California can escape this cannabis chaos by flipping the incentives. It’s just too lucrative to continue in the black marketplace and is far more expensive to move to the legal market. By easing licensing procedures or reducing taxes temporarily, and ramping up enforcement and penalties for illegal operators, the state has a better chance of coaxing fence-sitting operators to get licensed.…

Many cities and counties continue to ban marijuana businesses. Proposition 64 guarantees that right, which is why some advocates are floating the idea of another ballot measure to eliminate cities and counties’ veto power over marijuana businesses. It is unacceptable for local officials to refuse to recognise a legally-established industry. This only encourages the black market. Some areas are starting to move. Los Angeles County is one example. It has been considering reopening the ban on marijuana shops in unincorporated areas.

The members of my group would be most welcome to join me. Times‘ editorial board to go back and look at how they’ve written about other taxes, like those on cigarettes and those proposed for soda. They understand that marijuana is a product of a dark market and too many regulations are a problem. However, with soda and cigarettes taxes they are 100% certain that cities and states should increase them. They’re sure it will only lead to the thing that they want—fewer smokers and obese people—and not other unforeseen and negative consequences.

However, we are certain that this is not the case. New York City’s cigarette taxes are some of highest in the United States. There is also a huge black market in cigarettes that accounts for half of all sales. New York City considers cigarettes the same as marijuana. While some might have quit because of the high prices, there was also a marketplace for illegal bootlegging.

The fact that the marijuana crisis may have caused some to question their state’s excessive tax burdens and other regulatory burdens, and any downstream effects is great. These aren’t unique to marijuana. Because legal marijuana is still relatively new, it’s even more obvious.