As new California bill seeks cannabis tax breaks, youth groups appeal to state to keep funding

More than 150 California youth groups asked Gov. Newsom and the Legislature to not curtail tax funding they get from legalization. The industry says it needs tax relief to survive.|

Youth and social justice groups are pushing back against a proposal in the California Legislature to deliver tax relief for struggling cannabis producers, saying the tax revenue collected from the state’s marijuana industry is critical to sustain programs for at-risk children.

A letter signed by 152 children’s advocacy groups adds new, vocal opposition to the bill introduced by state Sen. Mike McGuire on Tuesday seeking to lighten the tax load for cannabis producers, who say their survival in a regulated market legalized by voters in 2016 is at stake.

But if state lawmakers “lower, suspend and/or eliminate the tax rates approved by voters in Proposition 64, we will see an immediate, negative impact on thousands of children living in poverty and children of color across our state,” the allied youth groups said in the letter.

Its signatories included organizations statewide related to child care and health care, including the nonprofits First Five Sonoma, First Five Marin and the Napa County Office of Education. They rely on $385.8 million in Prop. 64 funds annually to support programs benefiting 21,486 low-income children, the letter said.

“We have a really big stake in this. We hear a lot from the cannabis industry but not from those who benefit from these taxes. This is near and dear to us,” said Mary Ignatius, a statewide organizer of Parent Voices, a parent-led grassroots organization tasked with making child care accessible. Ignatius was joined Wednesday by a panel of child care advocates on a conference call announcing the release of the letter sent to Gov. Gavin Newsom, Senate President Pro Tem Toni Atkins and Speaker of the Assembly Anthony Rendon.

Cannabis operators, who sent out their own letter signed by more than 400 stakeholders to state leaders a few months ago, have complained about excessive taxation and the lack of local communities allowing for legal retail sales that compete head-to-head with the black market. They have called for elimination of the cultivation tax, a three-year reprieve on the excise tax on sales and a plan to open up more ground for retail space.

From cultivators and producers to distributors and retailers, companies rallied when the California Department of Tax and Fee Administration announced in December it would raise the taxes growers pay because of rising inflation. The state cultivation tax increased from $9.65 to $10.08 per dry weighted ounce this year.

The hike coincides with a state-projected budget surplus of $31 billion.

Blowback from the industry has comprised a kind of tax revolt, as cannabis operators complain about costly state and local taxes and the plummeting wholesale price of their product brought on by a glut in the market.

McGuire, a Democrat from Healdsburg, represents a sprawling district that stretches from Marin County to the Oregon border and includes the Emerald Triangle — the famed stronghold of California’s outdoor marijuana industry, taking in Mendocino, Humboldt and Trinity counties. His Senate Bill 1074 would eliminate the cultivation tax as of July 1.

He has called that tax “crushing” for small farmers on the North Coast.

In turn, his bill would increase the excise tax, or the levy placed on cannabis at the point of retail sales, to make up for lost revenue. SB 1074 would take a two-thirds vote to pass in the Legislature.

The stance of child care and youth advocacy groups, however, could make for a formidable opposition bloc. Those groups have relied on public funding tied to tobacco taxes and settlement funds, a shrinking revenue pool in California.

Cannabis taxes were eyed by lawmakers as a way to sustain that funding stream.

Dr. Lynn Silver, program manager for the Oakland-based Public Health Institute, contends cannabis businesses trying to circumvent their tax obligations are “violating the intent” of what the state voters passed in 2016 with Prop. 64 legalizing production and sales of marijuana for adult recreational use.

Silver, a pediatrician, suggested the anti-tax movement is driven by large cannabis corporations “maximizing profits” at the expense of children’s programs.

“It’s time to put our kids first and say no to cannabis tax cuts. We need every cent of cannabis revenue,” she said. She accused the industry of “crying wolf” when times get tough. “They’re hiding behind a smoke screen.”

But growers throughout the North Bay and beyond say it’s a do-or-die situation for them, with prices plummeting to three times less than what the market bore over a year ago. Many are concerned the high taxes will put them out of business.

“There probably needs to be immediate tax relief to stabilize the industry. We’re not against taxes,” said Marley Lovell of Esensia Gardens in Mendocino County. “But we need to find middle ground. It’s been a really tough year.”

California Cannabis Industry Association Executive Director Lindsay Robinson agreed, calling the funding youth organizations get as “extremely important” to keep programs functioning.

“We know how vital these funds are. But when the legal businesses fail, the funding will dry up,” she said.

Then, the state is back to square one, with a flourishing illegal market benefiting from a legal industry collapse, she added.

Robinson explained that if the market is stabilized with a temporary reprieve and retail outlets expand, then the opportunity to benefit from the quantity of operators paying into the pool helps spread the wealth.

“We hope the lower taxes will bring in more legal businesses,” she said. “We couldn’t agree more these funds are important (to youth programs). It’s not our intent to cut the funding.”

The debate has forced McGuire, the majority leader for Democrats in the California Senate, into a delicate balancing act, trying to maintain a financially strained industry in his district. But that assistance shouldn’t come at the expense of child care funding, he said.

“I can’t say this clear enough — all existing program commitments, including early education and child care, will be funded at the same level via this legislation and budget investment,” McGuire said.

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