California’s rejection of cannabis change

During this year’s legislative session, the cannabis industry sought major changes to a system of commercial sales that only recently launched and is still being shaped by state regulators. Overall, lawmakers rejected the key ones.

The industry’s primary motivation: sluggish sales, as high taxes and extensive regulations made it tough for companies to compete with the black market. Although legal sales picked up in the second quarter of the year, they were still 25 percent lower than state projections for the first half of 2018. California voters approved the Adult Use of Marijuana Act in November 2016, and three state agencies are still approving regulations for a system of sales that started January 1 this year.

In the legislative session that concluded last week, the cannabis industry backed bills that would have cut taxes, created a banking system for cannabis businesses and allowed delivery of weed into cities that have banned cannabis sales, among other proposals. Those bills failed.

Perhaps the biggest defeat for the industry was a bill calling for a temporary tax reduction introduced by Assemblyman Tom Lackey, (R-Palmdale). Combined state and local taxes can add as much as 45 percent in cost to a cannabis purchase, creating sticker shock for people who were previously buying weed under state’s medical laws that didn’t include a state tax.

Citing his experience in policing the black market when he was a highway patrolman, Lackey said the state should temporarily reduce its excise tax from 15 to 11 percent and suspend a cultivation tax that is based on weight.

The bill died in committee. It needed support from two-thirds of the legislature to amend the Adult Use of Marijuana Act, a tall order when trying to reduce tax revenue in a Democrat-controlled statehouse. But the bill also faced opposition from the Drug Policy Alliance, which said the proposal was “premature … and has the potential to reduce revenue to important state funds enacted by the voters of California.”

Weak sales figures show that action is still needed, Lackey said last week.

“It’s clear that the current tax structure is too high during this implementation period and the illicit market remains strong,” he said.

Another hurdle for the cannabis industry has been the ban on commercial sales by approximately three-fourths of cities and counties in the state. One way around those bans would be to allow delivery companies to bring cannabis to consumers in towns where dispensaries can’t operate.

That was the intent of a bill introduced by Senator Ricardo Lara, (D-Bell Gardens) and backed by the cannabis industry and advocates. The League of California Cities, the California State Association of Counties, the California Police Chiefs Association and others opposed it.

The bill died in the Senate. While the state Bureau of Cannabis Control later issued a proposed regulation that could have the same effect, passage of Lara’s bill could have prevented or hurt any legal challenges from local governments.

The industry also had a victory turned into a defeat—thanks to a veto from Gov. Jerry Brown. The legislature approved a bill introduced by Assemblyman Jim Cooper, (D-Elk Grove), allowing the industry to hold educational events for public officials.

In his veto message, Brown said the bill was unnecessary because nothing in the law precludes such events. But Amy Jenkins, a lobbyist for the California Cannabis Industry Association, said it was needed because the Bureau of Cannabis Control warned the industry not to hold such an event at the capitol.

Brown has been opposed to legalization in the past, saying that cannabis could make the state lose its competitive edge at a time it needs to be alert. The industry may get more support from Gavin Newsom, Brown’s likely successor after the November election. Although Newsom maintains he has never tried weed, he has been a strong supporter of legalization.