In 2017, voters from California approved of Proposition 64. The proposition legalized cannabis consumption for adult use. Now, things have changed in the illegal cannabis market. The legal cannabis market has not yet emerged as the top market seller for cannabis due to some issues. It is because around 70 percent of California’s city and county administration still does not allow the sale of cannabis under their laws.
Higher taxation is an economic trick
Economics also play a crucial role in defining the momentum of the industry in California. The cannabis taxation is above average, and this is declining the growth of the legal cannabis market in the state.
With ongoing taxation rates, entrepreneurs, business persons, and the general public are under pressure to turn to the black market. This is especially a serious case for patients who heavily rely on cannabis for their treatments. Taxes are high to degrade the consumers from getting cannabis.
Whenever taxes on a certain item are high, people tend to purchase that item less often. This, in return also hinders the growth of the market. There are a lower employment rate and even lesser profits. This factor applies to the otherwise emerging industry.
Ironically, the state offering high taxation rates belongs to a country that imposes the meager taxation rate among developed countries. Other businesses that are crucial for the economy rate are getting more profit from imposing low tax rates. These mainly include oil companies and tech giants.
Some companies are taking advantage of the deformed country tax code
With some loopholes in the taxation system in the country, there are some companies that pay zero taxes. The morphology of the tax code has a big role in this unfair play.
In the legal market, the tax code is inverted. Brands and consumers have to pay a high amount of taxes for the product. Furthermore, people from California state have to pay up to a huge percentage of 45% tax on every cannabis product they buy. This is a huge increment from the state sales tax of 6 percent.
There are certain elements that hinder cannabis entry into the market. For instance, the legal cannabis market in California is close to stagnant. Total sales of cannabis in California summed up to two and a half billion dollars last year. This is around $500 million less in comparison to total sales in 2017.
Despite inflation, the state market is driven to struggle
California shows a desire to expand the legal cannabis market. However, the cannabis consumers and entrepreneurs are not efficiently coping up with the fast track. Besides, there is more profit in buying and selling the substance in the illegal cannabis market. The black market of the state is double broad in comparison to the legal one.
Due to high cannabis taxes, there is a lack of competition that hinders the market growth. Huge taxes are also affecting the people who depend medically on the substance. It is also nerve-wracking for the business persons to run a cannabis brand dedicated to medical cannabis.
There is a bipartisan momentum in the Californian cities regarding encouraging legal entrepreneurship and usage. This effort is going on despite the painstakingly high taxation movement. Los Angeles, San Francisco, and other prominent cities realize the inflated taxation drive big companies to flourish. However, it hinders the progress of budding cannabis companies.