AB 987: The Golden State Wants More Green from Your Green

Posted by Meital Manzuri, Esq. | Mar 17, 2016 | 0 Comments

The Marijuana Value Tax Act, AB 987, proposes to levy a flat tax on MMJ sales, thereby adding to ones already in effect. While of course there is always widespread opposition to a new tax, AB 987 has plenty of supporters.

On February 10, 2016, SB 987 was introduced to California lawmakers – and it instantly caused snickering.

What Is AB 987?

Known as the Marijuana Value Tax Act, it would levy a new 15% tax on MMJ sales. If passed, SB 987 could put total MMJ taxes as high as 30% in some areas of the state when combined with fees and taxes from local cities and counties.

The new tax proposal would enforce new regulations for the state's vast marijuana industry and fund various state programs. So how are they planning on using our hard earned over spent tax dollars?

  • 30% would go to the BMMR for awarding grants to local agencies such as cities or law enforcement that provide oversight on cultivation, processing, manufacturing], distribution, and sale of marijuana.
  • 30% would go into the state's general fund
  • 20% would be earmarked for maintaining the upkeep of state parks, helping to alleviate a $1B backlog of deferred maintenance.
  • 10% would be set aside for the Natural Resources Agency to restore public and private lands and waterways damaged by irresponsible marijuana growers who have harmed the environment
  • 10% would be allocated to counties for drug and alcohol treatment programs

Reaction

Although almost everyone saw such a taxation initiative as inevitable with the passage of MMRSA in October of 2015, many were surprised at the amount of tax, especially since this tax will be in addition to already existing taxes.

Yet, some in the industry support to this bill. Some support it because it is believed that it could bring at least $100M in new revenue, which the state definitely needs. Others support the new tax because it lends a legitimacy to the industry that doesn't currently exist. Second, the Board of Equalization (BOE) believes that the new regulations will increase sales throughout the industry.

Furthermore, others also believe it will be the first step in eliminating the rogues and undesirables whose illicit actions undermine all efforts at legitimizing and regulating the industry. For example, many dispensaries don't pay the 7.5% sales and use tax that they're ostensibly required to pay on their transactions. This allows them to have very competitive pricing – $35-$45 for a 1/8th of MMJ.

As such, opposition to this tax is widespread. Proprietors who run their cannabis businesses legitimately don't want to share the industry with those who don't abide by environmental regulations. They can't compete with illegal dispensaries that set prices on various marijuana retail products lower than what tax-paying dispensaries pay wholesale. The playing ground between those who pay taxes and those who don't or won't get even more unfavorable. The black market will thrive.

Others believe the opposite of the BOE – more taxes could raise prices, which could lead to lower sales. Another argument against SB 987 is that what it proposes is similar to a 15% tax to be imposed on all MMJ purchases under the proposed Adult Use of Marijuana Act (aka the Parker Initiative). California voters will vote on AUMA in November and, if it passes, opponents say it would render SB 987 redundant and moot.

Others claim that the total tax rate, when added to local taxes, will be around the 30% mark, a mark that many claim would lead to closures of the legit businesses in the industry and allow the rogues not paying taxes an even bigger competitive advantage.

Click here to sign an online petition by Americans For Safe Access opposing SB 987.

Here's how Manzuri Law can help. Are you ready?

About the Author

Meital Manzuri, Esq.

Managing Partner.

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