Delay in tax system imperils California’s rush to govern cannabis economy

Lawmakers are concerned that they will not meet a key deadline to establish a system for collecting up to $1 billion in taxes.|

The regulatory and taxing system that will be needed to govern California’s newly legalized marijuana industry may not be in place by a key deadline next year, imperiling the state’s rush to oversee a booming ?$7 billion cannabis economy.

Multiple state agencies, including the Bureau of Medical Cannabis Regulation, are scrambling to develop rules for licensing and taxing cannabis cultivators and other businesses in the industry.

But State Sen. Mike McGuire, D-Healdsburg is among those concerned that the legal framework will not be in place by the Jan. 1 deadline set by Proposition 64, the marijuana legalization measure approved by voters three months ago.

“We are not being transparent and honest if we continue to say the state will be fully compliant come January 2018,” said McGuire, whose North Coast district includes the famed Emerald Triangle, where ?60 percent of California’s weed is reportedly grown.

At stake is $1 billion in anticipated tax revenue for the state, which needs that money to implement and enforce hundreds of new regulations meant to bring California’s sprawling cannabis industry out of the legal shadows.

But the tax collection system, including a so-called “track and trace program” for cannabis products, “is not in place and it will be near impossible to get it up and running by the new year,” McGuire said.

The delay is giving pause to some medical cannabis businesses considering an entry into the recreational pot market.

CannaCraft, a Santa Rosa-based manufacturer and distributor of cannabis-infused medicinal products, will stay out of the recreational market until it sees how the state implements Proposition 64, said company spokesman Nick Caston.

He said the track and trace program is “unlikely to be in place” by the 2018 deadline. But the Board of Equalization on its own can pursue sales tax payments by marijuana dispensaries, he said.

For pot operators, the delay also could have additional consequences. McGuire noted there is no state Board of Equalization office in the Emerald Triangle that can accept cash payments for sales taxes, requiring operators to drive for hours with huge amounts of cash to offices in San Francisco and Sacramento.

“It’s the state’s job to make it as simple as possible to pay the tax,” he said.

California’s current collection of marijuana taxes - on sales by medicinal cannabis dispensaries - is uneven geographically and amounted to just $22.3 million in the last fiscal year, he said.

State officials and industry leaders are now speaking out in greater numbers about the delay and its implications.

McGuire will chair a Senate Governance and Finance Committee hearing Tuesday in Sacramento, titled “California Cannabis in a Turbulent Time,” to consider what he called “significant unanswered questions” about the progress of state regulations.

Similar concerns were voiced Jan. 30 at a legislative hearing, where Lori Ajax, chief of the Bureau of Medical Cannabis Regulation, acknowledged “there are a lot of challenges” in meeting the 2018 deadline.

“The bureau has every intention of meeting our goal of Jan. 1,” spokesman Alex Traverso said in an email Wednesday.

State analysts and a marijuana industry representative expressed skepticism.

“California can’t afford to delay,” Hezekiah Allen, head of the California Growers Association, said at the Jan. 30 hearing.

Allen said in an email he believes regulations for medical cannabis - approved by the Legislature in 2015 - will be established on time, but “we are much less confident” about the timeliness of the rules for recreational marijuana.

The independent Legislative Analyst’s Office called the regulatory schedule “an ambitious time line,” adding that various state departments face “a shorter period of time than is normal for such a large and complex new regulatory program.”

McGuire noted that the state has yet to request proposals from vendors of technology systems that will handle the track and trace program, intended to assure the safety of cannabis products and their taxation.

Proposition 64 established a 15 percent statewide sales tax for the retail purchases of marijuana, plus a cultivation tax of $9.25 per ounce of flowers or $2.75 for leaves.

You can reach Staff Writer Guy Kovner at 707-521-5457 or ?On Twitter @guykovner.

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