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California to raise pot taxes as legal industry struggles to compete with illicit market

Brittany De Lea

California, known for its high taxes, is aiming to lift duties on the legal marijuana market yet again, which could potentially give even more business to illegal sellers.

Increased taxes on legal businesses will go into effect on July 1, as reported by the California Department of Tax and Fee Administration this week. And those hikes may be passed along to consumers.

The excise tax mark-up from July through year’s end is 60 percent. The new mark-up rate will be 80 percent at the beginning of next year.

The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction, or one in which the buyer and seller act independently.

The cultivation tax ranges from $1.29 per ounce for fresh cannabis plants to $9.25 per dry-weight ounce for a cannabis flower. These rates will also be adjusted for inflation at the outset of next year.

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The legal cannabis industry, facing onerous regulatory burdens, has been having a difficult time keeping pace with the illicit market. Higher taxes and higher prices may only make cheaper products sold illegally even more attractive.

“In California, 80 percent of the marijuana is grown illegally — 14 million pounds,” Fox News medical correspondent Dr. Marc Siegel told FOX Business last month. “Why is the illegal industry burgeoning and the legal industry not doing well? Regulation. It’s too hard to get a cannabis shop. It’s too expensive. There’s too much licensing fees … They cannot compete with the illegal trade.”

Industry analysts estimate that for every $1 spent in the legal market, $3 are spent in the illegal one, according to the Associated Press.

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Meanwhile, the taxes themselves have not lived up to expectations.

As noted by the Los Angeles Times, legislators had expected marijuana taxes to generate $1 billion in revenue, per year. However, for the fiscal year that ended in June, it had only raised $288 million. For the current fiscal year, the expectation is for revenue generation of $359 million.

California is one of 11 states that have legalized recreational marijuana. More than 30 states have legalized cannabis for medical use.

There is a bill circulating Congress to remove marijuana from the list of federally controlled substances. On Monday, it was approved by a House committee.

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