You love your Kosher Kush, a strong indica-strain developed in Los Angeles known for its earthy aroma and strong pain-killing and sleep effects. And while you don’t love the advertised price — $9.12 a gram, which is about 30 cents above the average per-gram price in California for all strains according to BDS Analytics (by comparison, by the end of 2017 the average price for a gram of flower in Colorado was $4.98) — you deal. At least you can stroll into your shop and walk away with your favorite strain.
But the thrill sours when the budtender in San Jose finishes ringing-up the order: $12.58. How did the price jump by more than one-third? Taxes, taxes, taxes.
You were accustomed to a taxation bump at the register, but with recreational cannabis sales, that bump has grown.
Sales Taxes Did Not Change
Cannabis transactions in California for recreational purchases still involve taxes that were around prior to January 1, back when the only choice was medical marijuana purchases. The state sales tax for everything that is subject to sales taxes, including cannabis, is 7.25 percent. Many municipalities attached their own sales taxes to the state tax, but the combined sales tax rate cannot exceed 10.25 percent. In San Jose, the combined rate is 9.25 percent, which is higher than the average rate for Santa Clara County (9 percent) and higher than the average for all combined municipal tax rates in California (7.75 percent).
Local Governments Impose Taxes on Cannabis
As far as general sales taxes go, nothing has changed. And some other taxes imposed specifically upon marijuana sales by municipalities remain in place as well. In San Jose, for example, cannabis sales get hit with an extra 10 percent tax on dispensary gross receipts (not a sales tax), which gets reflected in the final bill although it is not itemized in the bill. Other municipalities, like Long Beach, impose additional taxes on the industry, by taxing things like cultivation based on greenhouse square footage (which ends up raising the prices consumers pay for cannabis).
Some of these taxes were in place prior to January 1, but during the November 2016 election voters in many municipalities endorsed measures that would impose fresh taxes on recreational marijuana dispensaries, grows and distributors after January 1. So voters in some jurisdictions will encounter new local taxes when they shop for recreational marijuana, although they will not see the taxes itemized in their bills because they are not sales taxes.
New Statewide Cannabis Excise Tax Raises Costs for Consumers
While municipal taxes for cannabis vary, a new 15 percent excise tax now gets applied to dispensary sales across California. The retailer, not the consumer, is responsible for this tax, but it effectively raises the price of that gram of Kosher Kush.
New Tax on Growers to Impact Cost of Cannabis Across California
More? Yes indeed. Beginning Jan. 1, distributors — parties responsible for moving cannabis between growers and retailers — must collect a tax from growers and then return the tax to the state of California. The tax: $9.25 for every dry-weight ounce of cannabis flowers, and $2.75 for every dry-weight ounce of cannabis leaves. This tax, too, ends up affecting the price consumers pay at the register. On average, that eighth of Kosher Kush could see a price bump of about $1.16 to cover the grower’s tax.
How Much Will Your Gram of Kosher Kush Cost?
In November, the average price for a pre-sales-tax gram of Kosher Kush in California was $9.12.
With a sales tax of 9.25 percent in San Jose, for example, that gram price rises 84 cents, from $9.12 to $9.96. In addition, San Jose imposes a 10 percent tax on dispensary gross receipts, which loads another $.91 to the bill (although consumers will not see it on the receipt), bringing it to $10.87. The statewide excise tax of 15 percent lifts it another $1.37, to $12.24. And then the new grower’s tax could add roughly 33 cents to the final bill. So by the time the consumer walks out the door, that $9.12 gram of Kosher Kush sets her back $12.57. The effective tax rate? Roughly 38 percent.
A Way Out
Prior to Jan. 1, sales of medical marijuana were subject to sales taxes, unless consumers had a California state medical marijuana identification card. The cards were (and still are) granted to people who receive a doctor’s recommendation to be eligible for medical marijuana (this is how the vast majority of Californians gained access to legal marijuana in dispensaries), showed proof of California residency and then bought the ID card ($100, or $50 for low-income residents). Looking to save some money on that cannabis purchase? Apply for the card, which must be renewed annually. Given its cost, though, it probably doesn’t make sense unless you are buying $100 or more a month on your favorite flower.