Everything You Need To Know About Cannabis Taxes In California

by greenrush
cannabis taxes in california

Now that the recreational sale of marijuana is legal in California, one of the major complaints has been that the price is too high. Cannabis taxes in California have driven up the end-price of everyone’s favorite herb, but taxes on marijuana certainly serve a purpose. A breakdown of marijuana taxes in California comes courtesy of the California Department of Tax and Fee Administration, but what exactly does it mean for customers? And where will all these taxes go?


California Marijuana Excise Tax


The biggest jump in the cost of weed in California comes from the implementation of a 15 percent excise tax, and both medical and recreational marijuana are subject to it. This mandatory fee will be the largest stream of California marijuana tax revenue. As the sixth largest economy in the world, California’s legal marijuana market could edge up to four billion dollars in 2018—that’s $600 million dollars in projected weed taxes in California from this excise tax alone.


State excise tax revenue will flow into the California Marijuana Tax Fund. The Drug Policy Alliance outlines the intent of these funds as the following:


- Regulation: State bodies not covered by Prop. 64 licensing fees will receive funds for operating costs.


- Research: $10 million to a California public university for research on how legalization impacts communities; $3 million to the California Highway Patrol for five years to develop DUI protocol; and $2 million will go to the University of California at San Diego Center for Medicinal Cannabis Research.


- Community Reinvestment: $10 million, which will increase annually by $10 million for 5 years until it caps out at $50 million, will go to community organizations serving areas disproportionately hurt by the failed War on Drugs.


- Youth Drug Education/Prevention: 60 percent of remaining funds will benefit youth drug prevention, education, and treatment.


- Environmental Restoration: 20 percent of the remaining funds will be invested in environmental remediation, restoration, and protection.


- Local Government: the remaining 20 percent of funds will go toward state and local law enforcement—however, jurisdictions that decide against recreational businesses or home cultivation will not receive these funds.


Other Taxes on Cannabis in California

cannabis taxes in california

Weighing the cost of pre-Prop 64 vs. post-Prop 64 marijuana in California


Not all cannabis taxes in California come from the state-imposed excise tax. California has a statewide sales tax of 7.25 percent, which is applicable to all marijuana-related sales except for those made by cardholding medical marijuana patients. Individual jurisdictions may inflict additional sales taxes. Some cities in Los Angeles County, for example, have total local and state sales taxes that top out at 10.25 percent. Some municipalities will adopt their own excise taxes on top of the state excise tax, too.


The taxes on recreational marijuana in California now range from 22.25 to 24.25 percent, and that’s before any local excise taxes. Some fear that this sticker shock could encourage the continued use of the marijuana black market in California. Here is an example of a pre- and post-recreational sale legalization price breakdown from Emerald Report:


2017 cost for one-eighth of an ounce of cannabis flower:


Base price: $25

Sales tax: $3.11

Total: $28.11


2018 cost for one-eighth of an ounce of cannabis flower:


Base price: $25

State flower tax: $1.14

State licensing fee: $0.02

State full panel testing: $1.16

Distribution fee: $3.75

Subtotal: $31.07

Excise tax: $4.67

Sales tax: $3.26

City tax: $0.93

Total: $39.93


Pass Me a Light… at the End of the Tunnel

cannabis taxes in california

Colorado’s marijuana tax rates are higher than California… and business blossoms!


Colorado crested $500 million in legal marijuana tax revenue in July 2017, and their state taxes marijuana at a rate considerably higher than California. At a 36 percent taxation rate, Colorado pays more for legal cannabis than California, and their cannabusiness industry is booming. Colorado focuses the majority of their cannabis tax revenue towards education—both youth and adult. They also allow individual municipalities to do with the excess what they see most beneficial: some cities help their indigent population while others create college scholarships. If the same is true for the fate of cannabis taxes in California, paying extra for an eighth of top shelf bud doesn’t sound all that bad if it means you get to help out those less fortunate than yourself.


There’s also the very real possibility that California will reduce tax rates if they do not see the desired projected revenue. If the black market increases as a result of higher taxes, it will behoove the state government to rethink their approach to taxing adult-use weed. As we’re barely a month into the process, it’s difficult to see precisely how cannabis taxes in California will play out. For the time being, however, it’s best to buck up the extra cash to better the experience of all Californians—smokers or not.