California Governor Proposes Single Regulatory System For State Cannabis Market

California Gov. Gavin Newsom plans to streamline cannabis licensing and change cannabis tax structure with the 2020-2021 budget.

California’s governor wants to simplify the state’s cannabis industry by creating a centralized licensing agency.

“Establishing a stand-alone department with dedicated enforcement will centralize and align critical regulatory functions to build a successful legal cannabis market, and create a single point of contact for cannabis licensees and local governments,” the governor’s administration stated in a budget summary.

Gavin Newsome California marijuanaCalifornia Governor Gavin Newsom (D) released his proposed budget for the 2020-2021 year, which included his administration’s proposed plans for the state’s cannabis industry. As the world’s largest cannabis market many have viewed California’s launch of the legal recreational cannabis market on Jan. 1, 2018 as a major fail.

In an effort to recover from the challenges of the legal market, Newsom announced a consolidation of the state’s cannabis licensing system into one agency, the “Department of Cannabis Control.”

Under California’s current system, the Bureau of Cannabis Control, the Department of Food and Agriculture and the Department of Public Health each have roles in cannabis licensing. To improve access to licensing and simplify regulatory oversight, the administration plans to consolidate the three licensing agencies into a single agency by July 2021.

The administration wants to simplify the tax structure by moving the point of collection of the retail excise tax from the distributor to the retailer. In addition, they plan to move the collection of the cultivation tax from the final distributor to the first.

The change is intended to “reduce the tax collection burden on the cannabis industry and simplify the tax collection process,” according to the administration’s summary. However, the change is expected to bring a revenue loss in the 2020-2021 and a small increase in the following year.

Cannabis tax rates have been a point of contention for California cannabis businesses. The state’s cultivation tax on recreational and medicinal cannabis increased on Jan. 1 this year to adjust for inflation. The increase only adds to growing criticism of California’s legal cannabis market.

Newsom’s administration vowed to look at the tax rates this year.

“The Administration, in consultation with the industry and stakeholders, will consider other changes to the existing cannabis tax structure, including the number of taxes and tax rates to simplify the system and to support a stronger, safer legal cannabis market,” the budget summary states.

In May, state lawmakers will make changes to Newsom’s proposed budget based on the state’s economic forecast. The governor’s administration intends for California’s final budget to be enacted by lawmakers in the summer.

California Cannabis Tax Revenue

According to the governor’s budget summary, cannabis excise tax generated $299 million for the state in 2018-2019 and expected to produce $479 million in 2019-2020 and $550 million in 2020-2021.

Looking forward, the state’s 2020-2021 budget estimates $332.8 million will be available to allocate to “youth education, prevention, early intervention, and treatment (60 percent); environmental protection (20 percent); and public safety-related activities (20 percent).”

Proposition 64 was approved by California voters in 2016 and ensures the funds generated by cannabis tax revenue are prioritized to first apply to expenditures for regulatory and administrative workload, followed by research and activities related to cannabis legalization and past impacts of cannabis criminalization.

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