California Should Be Reducing, Not Increasing Cannabis Taxes

Cal NORML denounced the tax hike as wrong-headed and untimely. “The legal industry is already so burdened by excessive taxes and regulation that it cannot compete with unlicensed marketers,” says California NORML Director Dale Gieringer. “California needs to be reducing, not increasing cannabis taxes to make the legal market more competitive.”

The cultivation tax is especially burdensome on licensed farmers, who are struggling from a price collapse due to overproduction. Wholesale prices for outdoors flower have plummeted 60% in the past year to as little as $200 – $500 per pound according to MJBizDaily.com. At this rate, the new cultivation tax amounts to a whopping 30% – 80% of the cost of production. Even after the tax has been paid, producers have no assurance that the crop will ultimately be sold. Meanwhile, the costs are passed along to consumers and magnified at every subsequent stage of production.

The CDTFA is authorized by law to adjust the cultivation tax yearly in line with inflation; in the case of cannabis, however, prices have collapsed, not inflated.

“The cultivation tax was designed to bolster prices against a possible collapse in the legalized market,” says Gieringer, who once supported it. “The fear was that if cannabis became as cheap as comparable herbal products like tea, the price could drop to a few dollars per pound, or just pennies per joint. In actuality, however, California’s costly taxes and regulations have raised the price for legal cannabis substantially above what it was prior to legalization.”

A 2020 poll of Cal NORML members found consumers want lower taxes on cannabis, with 76% of respondents naming it as their top legislative priority. Prop. 64’s taxes and local restrictions sent many Californians back to unlicensed and untested suppliers when it took effect in 2017, leaving many medical patients and others without a safe and affordable source for cannabis, and fueling the illicit market.

“California has no need for further cannabis tax money. The Legislative Analyst’s Office has estimated that the state will have a budget surplus of $31 billion next year. The cultivation tax is particularly onerous and cumbersome to administer. We urge that it be eliminated,” said Gieringer.

March 31, 2021 – Consumers wishing to buy products to vape cannabis oils may want to make their purchases ASAP before vape companies and shippers move to comply with a new US law banning shipment of certain vaporizer products. We have heard from one company that will cease shipping to certain CA zip codes as of noon tomorrow (April 1 – no fooling).

The law should not affect devices used to vape dry herb or waxes, only oils.

According to a recent article in MJ Biz Daily:

The legislation takes effect in late March, after which the USPS has 120 days to create rules to implement the law.

FedEx and UPS already have said they will follow the U.S. Postal Service’s directive and won’t ship vaping products.

“Effective April 5, 2021, UPS will not transport vaping products to, from or within the United States due to the increased complexity to ship those products,” Matthew O’Connor, a UPS spokesman, said in a statement.

While the law is directed at nicotine products, it arguably includes cannabis oil products by banning shipment of:

“any electronic device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device,” including “an e-cigarette; an e-hookah; an e-cigar; a vape pen; an advanced refillable personal vaporizer; an electronic pipe; and any component, liquid, part, or accessory of a device described [above], without regard to whether the component, liquid, part, or accessory is sold separately from the device.”

Cal NORML has promoted vaporization as a valuable harm reduction tool for reducing exposure to harmful smoke toxins since sponsoring the first scientific studies on vaping in 1996 and 2001. We objected to USPS’s new rule and NORML put out an action alert on it.

By Dama Financial

Myth 1: It is illegal for Banks to serve Cannabis-related Businesses because marijuana is illegal under federal law.

The Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. However, 10 states plus Washington D.C. have fully legalized marijuana and 33 states have legalized it for medical uses.

In 2014, the U.S. Treasury acknowledged banking relationships between financial institutions and legal cannabis-related businesses (CRBs) through its release of FinCen guidance. The guidance stated that serving CRBs was a risk-based decision, and expressed that thorough customer due diligence is a critical aspect of making an assessment and whether a CRB implicates the Cole Memo priorities or violates state law. A financial institution can legally transact with a CRB if the institution establishes and maintains an effective compliance program that adheres to the FinCen guidance.

Myth 2: CRBs can qualify for traditional business banking and payment processing services if they hide their marijuana-related activity with a shell company and limit their cash deposits.

Some CRBs have access to banking through federal and state-chartered banks and credit card processing by not disclosing they are a cannabis-related business. However, banks and payment processing companies will eventually figure out they are a cannabis-related business and close the bank account and request their funds be withdrawn.

Myth 3: Transparent cannabis banking is expensive.

Compared to traditional business banking, this is true. Banks that follow FinCEN guidance to serve cannabis-related businesses must invest in extensive due diligence and regulatory compliance technology and processes, and human capital which gets passed on to their banking clients.

Banks and credit unions which advertise a low fee for servicing cannabis-related businesses may not be fully following FinCEN guidance, charge excessive transactional fees in addition to a monthly fee, or may limit the banking services available to their CRB customers.

Compared to 5% – 8% average credit card transaction fee for high-risk merchants, Dama Clients feel a 2% fee on deposits into a Dama-managed FDIC-insured business bank account is reasonable to keep their cash safe, access convenient online banking and receive support from a dedicated Relationship Manager. Dama Clients can also invest their excess funds in a secondary 1% interest-earning account.

Myth 4: Operating my cannabis business with only cash is lower cost than banking or accepting electronic payments.

Often overlooked is the cumulative cost of operating a cash-intensive business, which has been estimated to be 5 – 15% of receipts. Not only are these businesses targets for criminal activity but roughly 90% of financial loss in the marijuana industry can be chalked up to employee theft. Dama Financial’s armored cash courier partners carry adequate insurance that covers cash picked until it is deposited into their account. Dama’s bank partners provide up to $250,000 FDIC-insurance on each account. Keeping low amounts of cash on hand reduces vulnerabilities to burglaries and violence against their employees, customers, and their community.

For more information about Cannabis Banking and Payment Processing, call (877) 401-3262 or schedule a consultation. Please mention that you heard about Dama Financial from CANORML.