Standing at the counter of a Santa Rosa dispensary, I’m trying to quickly do the math on how $187 worth of products just turned into a $233 purchase. Heat rises in my cheeks, on this cold January morning, and I’m in a bit of shock. Wait, is that right? That can’t be right.
Yep, it’s right. As of January 1 California cannabis consumers are paying 22 to 24 percent tax fees on cannabis. Sometimes more, sometimes a bit less depending on the local sales tax. But holy Jack Herrer, that kind of upcharge could harsh anyone’s mellow.
Most medical users are having the same sticker shock as they head to familiar dispensaries and, for the first time, see exactly what a 15 percent state excise tax, 12 percent sales tax, $9.25 per ounce cultivation tax (for growers) as well as various other local taxes and fees look like on their receipts. This is the increasingly pricey future for cannabis in California.
On another dispensary visit, to Sebastopol’s Sparc, a familiar pattern emerges: Surprise, shock, and outrage of former medical patients who knew the taxes were coming, but had no idea just how much their pocketbooks would suffer. Prices were almost doubled on some items, and anger is often directed at budtenders, who are apologetic, trying to explain the complicated process of compliance with new state tax mandates. You can’t help but feel a little sorry for them.
At Sparc (formerly Peace in Medicine), the state excise tax of 15 percent is built into the cost of the price of the product. For example, on my bill, the costs of my concentrates were simply listed as $30 and $12, with only a city tax added to the $41 bill, bringing it to $44.64. It just seemed expensive overall, and I actually bought less, because the prices seemed higher — something Sparc CEO Erich Pearson says was a difficult choice made by the company for auditing purposes and simplicity for the consumer. Pearson also says that adding the excise tax into the price of the product is how the state has mandated how dispensaries do their accounting.
Not adding excise tax into the retail price causes taxes to be under-collected, said Pearson. The California Department of Taxes and Fees explained how to collect the taxes in this document released earlier this month.
The surprising new prices cause several patients at the dispensary to announce that they planned to go “black market”, turning to the unregulated cannabis market rather than pay high taxes, something Pearson says is almost inevitable if taxes aren’t lowered by state regulators.
“I believe that taxes are too high, and there’s a sweet spot that balances taxes the government needs against a consumer willingness to pay tax when they have an alternative source in the black market,” said Pearson. “You can’t get the black market to go away when people are incentivized to use it,” he added.
Building in the taxes into the price may be hurting more than helping local dispensaries, but because there is no standardized codification for receipts, no point-of-sale technology and no real clarity on how to present the taxes to consumers, dispensaries are left to figure it out on their own. The California Department of Tax and Feed Administration, which is responsible for collecting cannabis taxes, itself doesn’t seem totally clear. In the digital CDTFA Tax Guide for Cannabis Businesses, users are told, “We will update this page as we receive information about the taxation requirement for the cannabis industry.” Not exactly confidence-building.
Santa Rosa’s Organicann cannabis dispensary has taken a different approach. The still-medical dispensary’s consumer receipts clearly spell out how much they are paying to the state and county, directing outrage at lawmakers rather than the dispensary.
“It’s so people know what they are being taxed, so that they can see it,” said a representative of the Santa Rosa dispensary, which also operates in Mendocino as MendoCann. The company did not respond to repeated inquiries for more information.
So what’s a consumer to do? You can write your local congressperson, you can huff and puff, you can threaten to go black market — but frankly, the train has already left the station. This is the cost of legalization, regulation and bringing this longtime hidden industry into the light. Trouble is, many folks may head back to the shadows if the cost of California cannabis continues to rise.