Newsom Signs Bills Marginally Improving California’s Broken Pot Industry

Taxes are still high, regulations are still tight, and the black market continues to thrive.

Gov. Gavin Newsom signed eight cannabis-related bills into law last week that are generally receiving wide praise. Thanks to the new laws, and several others that Newsom had signed earlier, California’s cannabis industry will be a little more equitable, a little less burdensome for businesspeople, and a little safer for consumers. But it will still be essentially dysfunctional.

Last December, the United Cannabis Business Association, which represents pot retailers in the state, took stock of 2018, the first year of legal recreational cannabis in California. There was, the UCBA said then, “a long way to go before the marijuana industry settles all of its growing pains. Those attempting to get into the legal business claim the state’s regulations are too stringent and the barrier for entry too costly.”

Despite the new laws, and other, marginal improvements here and there, the same thing could be said today. Anybody starting a cannabis business now “will be doing it on shaky ground,” said Javier Montes, the UCBA’s vice president and owner of the Delta-9 THC dispensary in Los Angeles.

Taxes are still high, regulations are still tight and often nonsensical, vast areas of the state still don’t allow pot businesses to set up shop, and — for all those reasons and more — the black market is still thriving.

Newsom and the legislature didn’t do much to address any of those fundamental problems. Not that nobody tried. Earlier this year, Assemblymember Rob Bonta of Alameda proposed modest decreases in state taxes (temporarily lowering the sales tax from 15 percent to 11 percent and the temporarily elimination of the cultivation tax, which stands at $148 for flower and $44 for leaves). It was shot down, largely because lawmakers were disappointed in the “shortfall” of tax revenues, which last year were just $288 million, way below the $1 billion that was forecast before adult-use cannabis was legalized in 2016. (“Shortfall” goes in quote marks because, as Michael Hiltzik recently pointed out in the Los Angeles Times, that $1 billion figure was basically pulled out of somebody’s orifice).

The hope among people in the legal-pot business now is that legislators will wise up in time for the next session. The top priority “has gotta be taxes,” Montes said. “We’ve got some 3,000 illegal shops and only about 800 legal ones. People are still going down the street to buy from the black market, where taxes are zero.”

Still, Newsom signed several bills that advocates say will yield some minor improvements for the industry and consumers:

* Cannabis retailers will now be allowed to donate products to medicinal users without fear of breaking the law. This “compassion” measure, sponsored by Sen. Scott Wiener of San Francisco, will help low-income people with medical issues get access to cannabis without having to pay California’s “ridiculous” taxes, Wiener said when he introduced the bill. The new law is “a victory for the cannabis community at large,” said Pamela Epstein, general counsel and chief regulatory and licensing officer for Eden Enterprises in Hayward, which is holding an event on Veteran’s Day weekend to introduce its new compassion program.

* The state will now allow cannabis businesses that are partnerships or sole proprietorships to deduct expenses on their state taxes, just like any other business. Gov. Jerry Brown had previously vetoed a similar measure.

* California has eased the burden of product-testing somewhat by allowing companies to retest products to correct for small errors or discrepancies, rather than destroying tested products, often at great cost.

Other bills Newsom signed included one to allow researchers at the Center for Medicinal Cannabis Research at U.C. San Diego to cultivate cannabis for use in scientific study; a bill setting a 60-day deadline for cannabis businesses with 20 or more employees to sign a labor peace agreement, allowing employees to unionize without their employer’s interference; a bill restricting cannabis companies from using the name of a region in its advertising if the product was not actually produced in that region; and one allowing the mandatory symbol for cannabis vapor cartridges to be as small as a quarter-inch square rather than a half-inch. This last one was “a huge win for the industry,” Epstein said, given that packaging real estate is already a precious commodity, thanks to all the labeling requirements. 

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