Legalizing the sale of cannabis in California has turned out to be a fruitful endeavor for the state thanks to taxes. When Proposition 64 was passed three years ago and the state added recreational use to medical use, sales taxes helped rake in more than $1 billion in revenue. But just how much a customer gets charged in taxes varies from city to city. It’s not only confusing for consumers, but some say downright regressive. Leafly Senior Editor David Downs joins KCRW to talk about their findings on weed taxes throughout the state.
KCRW: For some people who actually get a receipt back from their dispensary, what exactly might they see in the tax breakdown section?
David Downs: “We often hear about receipt shock from cannabis dispensary shoppers who are new to the stores.
In Los Angeles, for example, if you have $100 in pre-tax cannabis, by the time you get out the door, that cost is going to be $138.52. And that's on the high end of prices across the state. And that's because you're dealing with a 15% state excise tax layered beneath a 10% local business tax, which is then layered beneath a 9.5% local and state sales tax.
… The receipts don't really do a good job of delineating these taxes. ... If you asked a ‘budtender’ or a manager or even an attorney expert on taxation, they have a hard time explaining how the state is doing that calculation and how those taxes add up.”
You can see here what $100 in pre-tax legal weed gets you per city. Credit: David Downs (Highland Media)/Leafly.
If the state already has a general tax, why are Californians being charged such high amounts in certain places?
“Californians just legalized cannabis in 2016. We've had legal sales for three years, and the main driver of these price increases is that local cities can set a local business tax rate for cannabis.
That's anywhere from zero to 15% of gross receipts. … And just for comparison, Oakland's cannabis taxes are 417 times higher than Oakland's taxes on guns and ammo business. And in Los Angeles, the marijuana taxes on businesses are 2,808 times higher than the business taxes on a check cashing or a payday lender.”
Are the dispensaries the ones benefiting from any of these costs?
“Not at all. California dispensaries consistently report being in the red — that is not making money each year after they pay these taxes and pay the associated fees and costs of running their business. This is especially true for small or minority-owned cannabis businesses that don't have reserves per say or rich investors or a credit line — even though the state is taking in hundreds and hundreds of millions of dollars in tax revenue. The actual amount that a business owner is left with at the end of the day, they report, is often zero or a negative amount.”
This chart shows where California’s legal cannabis taxes go. Credit: David Downs (Highland Media)/Leafly
What do you think fair cannabis taxes look like?
“We talked to tax experts who said that initially, you want to keep the rate low, to draw in shoppers and reduce the illicit market and then potentially raise them over time.
Our neighbor in Oregon, for example, caps local cannabis business taxes at 3%. And the local cities that have put that on the ballot have accepted that. ... So there is clearly room for local cities to get their revenue. But the question is: Do you make it too high to have those local businesses even exist in the first place?”
What's the trick to saving the most money when you're buying weed?
“Look for cities with a no or low local cannabis business tax. They’re going to be found in unincorporated areas of counties. So, for example, here in unincorporated Alameda County, you can pay 0% on your cannabis taxes at stores like We Are Hemp.
We bought a $180 ounce. That's about 28 grams of cannabis out the door ... all the taxes were included. We found that the city of Weed, California, up in the northern corner of the state, they have some of the lowest rates as well as Yolo County.
And then you want to look for satellite cities around major metros because for the most part, these major, major metros are soaking consumers. Oakland, San Jose, Long Beach, LA are at the worst of the the end of the spectrum. ... But again, they're being beat by smaller places that typically are more conservative. … So if you're driving through San Bernardino County on the way back to LA, shop around there.”