California Governor Gavin Newsom Aims to Streamline Cannabis Licensing, Tax Collection

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California Governor Gavin Newsom has drawn up plans to significantly alter how the state regulates its cannabis industry.

Unveiled Friday as part of Newsom’s proposed 2020-21 budget, the changes include consolidating California’s three licensing agencies -- the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health – into a single entity known as the Department of Cannabis Control.

“Establishing a stand-alone department with dedicated enforcement will centralize and align critical regulatory functions to build a successful legal cannabis market,” the budget summary reads.

The Newsom administration has also suggested changes to the state’s cultivation and excise tax collection methods. Under the plan, the first distributor would be responsible for collecting the cultivation excise tax ($9.95 per ounce of dried flower), not the final distributor. Meanwhile, dispensary operators (not distributors) would pick up the retail excise tax.

According to a press release from the Bureau of Cannabis Control, shifting tax collection to the retailer would eliminate a need for the California Department of Tax and Fee Administration (CDTFA) to estimate product mark-up and set new wholesale rates.

“The changes will reduce the tax collection burden on the cannabis industry and simplify the tax collection process,” the agency wrote in a press release.

Gov. Newsom’s summary also indicated that his administration would also speak to cannabis industry stakeholders and consider adjustments to the existing tax structure, including the number of taxes and tax rates.

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The proposed changes come about one month after California’s Legislative Analyst’s Office (LAO) delivered a lengthy report outlining several possible adjustments to the states cannabis taxes. Among the suggested changes, the LAO recommended a tiered tax structure based on potency, and collecting retail excise taxes from dispensaries.

California is expected to bring in about $479 million in cannabis excise taxes in 2019, and $550 million in 2020.

After proceeds from the Cannabis Tax Fund are administered for regulatory and administrative purposes, the state said it expects to allocate nearly $200 million to youth education programs, more than $66 million each for environmental protection and public safety. A total of $332.8 million is available, according to summary.

In a statement, United Cannabis Business Association board president Jerred Kiloh praised the proposed changes but noted that industry stakeholders have “struggled to navigate an increasingly complex regulatory landscape” since marijuana was legalized for adult-use in 2016.

“Today’s announcement from the Governor marks a turning of the tide and we are encouraged by the efforts outlined to streamline the industry’s regulatory framework and simplify licensing and taxation,” he said.

Following a budget briefing last Friday, Nicole Elliott, Newsom's senior advisor on cannabis, tweeted that "2020 is going to be a big year" for the California marijuana industry.

Gov. Newsom’s $222 billion budget proposal has not been finalized and additional details about the administration’s cannabis regulatory and tax reform efforts are expected this spring.