The governor of California signed comprehensive budget legislation into law which includes provisions that will provide tax relief to marijuana cultivators, among other efforts aimed at restructuring the state’s recreational marijuana industry.

Gov. Gavin Newsom (D) said the legislation would ease the cannabis industry’s tax burden and help to curb the state’s still-thriving illicit marijuana market.

The measure, AB 195, builds upon Newsom’s amended budget proposal and cleared both legislative chambers in near unanimous votes.

The marijuana-specific provisions would eliminate the cannabis cultivation tax, and shift the burden of the state’s separate 15 percent excise tax from distributors to retailers. The signed legislation, which takes effect immediately, also ensures the excise tax will not increase for at least three years. In Newsom’s previous budget proposal, the freeze on excise tax increases only extended for 18 months.

The bill also increases the punitive measures that can be taken against those operating in the unlicensed cannabis industry. Landlords that knowingly lease or rent space to illicit growers will now be liable for civil penalties of up to $10,000 per day of unlicensed cultivation.

The new budget bill further includes support for marijuana businesses with social equity status. They are now eligible for a $10,000 tax credit, as well as being allowed to keep 20 percent of excise tax revenues for reinvestment in their business.

The budget allocates $40 million in total towards providing tax credits. Half of this will go to social equity cannabusinesses, the other half will be split between microbusinesses and eligible retailers.

The bill also contains greater workforce protections for employees in the cannabis industry. Currently, labor peace agreements are only possible in workforces of twenty or more. This has now been reduced to 10.

The measure also apportions $670 million in cannabis tax revenues for investments in education, environmental clean-ups, youth substance abuse programs, and law enforcement. This amount is on top of $30 million the state had already set aside from marijuana tax revenues as grants for dozens of community organizations.

Newsom also includes a $20 million grant to support local cannabis retail licensing efforts, as a way to encourage more cities and counties to allow marijuana dispensaries to operate in their jurisdictions. Currently, more than half refuse to allow marijuana retailers from doing so.

The director of the state’s Department of Cannabis Control (DCC), Nicole Elliot, emailed industry stakeholders about the changes, commenting that the new budget law will “bring tax relief to the cannabis industry, support equity businesses, strengthen enforcement tools against illegal cannabis operators, and protect youth, environmental, and public safety programs funded by cannabis tax revenue.”

California marijuana businesses, cultivators in particular, have long complained that the state’s tax system is too onerous and is counterproductive to industry growth. This appears to be supported by a recent economic analysis courtesy of The Reason Foundation which concluded that high taxes, municipal bans on marijuana retailers, and regulatory costs had all served to stymie the growth of licensed cannabusinesses in California. The result of California’s regulatory system for cannabis means marijuana is effectively taxed at $92 an ounce, much higher than in other states that have legalized cannabis.

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