Fitch: Cannabis Taxes Set to Rise With Votes in Seven California Cities

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Fitch: Cannabis Taxes Set to Rise With Votes in Seven California Cities

SAN FRANCISCO, Nov. 8, 2017 /Weed Wire/ — Residents of seven California cities voted to impose local taxes on cannabis in Tuesday’s elections. With retail sales set to begin on January 1, the newly approved measures will add to the already substantial tax burden on legal cannabis, potentially undermining California’s fledgling legalization initiative, according to Fitch Ratings.

Voters in the cities of Cotati, Farmersville, Modesto, Pacifica, Palm Springs, Rio Dell, and Woodlake approved cannabis measures on Tuesday, joining local governments across the state that adopted local taxes in prior elections. In total, 67 of California’s 540 cities and counties have adopted local cannabis taxes to date, contributing to combined state and local tax rates that Fitch estimates could be as high as 45%.

“High taxes increase prices in legal markets, and have the effect of reinforcing price advantages to long established black market cannabis,” said Stephen Walsh, Director. “Taken together, state and local tax burdens put California at the high end of the tax range for states that have legalized nonmedical cannabis.”

Taxes applicable to nonmedical cannabis include a 15% state excise tax, state cultivation taxes of $9.25 per ounce for cannabis flowers and $2.75 per ounce for leaves, state and local sales taxes currently ranging from 7.75%-9.75%, and local business taxes of up to 20% of gross receipts.

Local governments in the state hope to reap substantial revenues from legal cannabis sales. However, over the long term, price declines and black market sales may limit tax growth. Fitch’s special report titled “Local Taxes May Challenge Cannabis Legalization in California” is available at www.fitchratings.com.

Contact:
Stephen Walsh
Director, U.S. Public Finance
Fitch Ratings, Inc.
+1 415 732-7573
650 California Street
San Francisco, CA 94108

Media Relations:
Benjamin Rippey, New York
Tel: +1 646 582 4588,
Email: benjamin.rippey@fitchratings.com

Additional information is available on www.fitchratings.com.

Related Research
Local Taxes May Challenge Cannabis Legalization in California (High Tax Rates Likely to Promote Black Market Sales, Limit Governmental Revenues): https://www.fitchratings.com/site/re/903597

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