As the Golden State readies for the rollout of recreational cannabis on Jan. 1, 2018, some are preparing for a windfall of revenue from California cannabis taxes and others are preparing to continue competing with the black market.
On Sept. 25, 2017, Fitch Ratings, a global credit ratings and research company, announced an upcoming report that will show how California cannabis taxes will keep black market cannabis alive and potentially limit tax revenues for municipalities.
“Effective tax rates on nonmedical cannabis will be as high as 45% when accounting for both state and local levies. Taxes include a 15% state excise tax, state cultivation taxes of $9.25 per ounce for cannabis flowers ($2.75 per ounce for leaves), and state and local sales taxes ranging from 7.75% to 9.75%,” reads a press release issued by Fitch Ratings. “California’s high taxes are likely to keep black market prices competitive into the long term.”
While Fitch Ratings’ report, slated to come out in the next few weeks, will shed light on the black market’s ability to survive in the wake of California cannabis taxes, it isn’t the first to have identified that legal recreational cannabis won’t completely eradicate the state’s black market.
According to a study by the University of California Agricultural Issues Center, illegal sales in a post-legalization California will capture 29.5% of the total market.
If California cannabis taxes cause the black market to thrive instead of decline, local governments may need to reevaluate the optimal level of taxation.