California Governor Proposes a Cannabis Tax Reduction in an Effort to Shore Up the Legal Market

Deanna Lucci

On Friday, May 13, California Gov. Gavin Newsom introduced proposed revisions to his 2022-2023 budget proposal, which would eliminate the cannabis cultivation tax rate beginning July 1, 2022.

The 15% excise tax on cannabis sales would remain, and the collection and remittance of that tax would be limited to retail sales beginning January 1, 2023. Currently, the cultivation tax rates are $10.08 per ounce of flower, $3.00 per ounce of trim, and $1.41 per ounce of fresh cannabis plant, and these taxes are paid on all recreational and medicinal cultivation of cannabis.

The Governor specifically stated that the goal of this proposed tax cut is to promote the state’s legal market, which has struggled to compete with the illicit market and is feeling the effects of inflation and reduced demand from pandemic peaks. Despite the tax cut, a recent analysis found that removing the cultivation tax would actually increase overall tax revenue from cannabis sales by 123 percent by 2024 due to an expected increase in sales.

Nicole Elliott, Director of the California Department of Cannabis Control, wrote in an email, “Governor Newsom delivered on his commitment to help simplify the tax structure by moving forward a proposal that, if approved by the Legislature, will remove unnecessary administrative burdens and costs, temporarily reduce the tax rate to support shifting consumers to the legal market, and stabilize the cannabis market.”

Newsom also proposed the creation of a one-time “cannabis local jurisdiction retail access grant program” to support the development and implementation of local retail licensing efforts; setting Allocation 3 funding for youth education, intervention and treatment, environmental restoration, and state and local law enforcement programs at a baseline of $670 million annually for three years; and strengthening tax enforcement policies to increase tax compliance and collection and reduce unfair competition.

Newsom announced in the May Revision that $670 million of the Cannabis Tax Fund will be available for youth education, prevention, early intervention, and treatment; environmental protection; and public safety-related activities, an increase of $74.7 million from the Governor’s Budget estimate.

To go into effect, the proposal must be approved by a two-thirds majority of the state legislature by June 15, 2022.

 

Cannabis: NJ Assembly Passes Decriminalization Bills for Possession of Certain Amounts of Cannabis

The NJ Assembly passed two bills, 1897 and 4269 that would decriminalize possession of certain amounts of cannabis, while reducing penalties for what would still be deemed to be an arrestable/convictable offense.

The measures, which were introduced at the Assembly Community Development and Affairs Committee on Monday, passed by a 63-10 vote.

Per NJBIZ, a Senate version (Senate Bill 2535) was introduced on March 16 to the Senate Judiciary Committee, but has not moved since introduction.

There will still be work to do to reconcile the Assembly bills with Senate Bill 2535 which was introduced on June 4th and referred to the Senate Judiciary Committee but much of the same language was used in both the Assembly and Senate versions.

One the key difference between the Senate and Assemble versions is the treatment regarding possession of up to a pound of marijuana. Yes, you read that right – a POUND.

Under the Senate bill, possession of up to a pound of cannabis will no longer be an arrestable offense, replacing it with a written warning for first offenses and a $25 civil penalty or community service for any afterward.

The Assembly bills instead call for a reduced penalty for possession of up to a pound and thereby lowers a first-time offense from 18 months to 6 months of imprisonment, and fines from $10,000 to $1,000. Any subsequent offenses would be met with the current level of punishment.

Possession of up to 2 oz. of cannabis, under current state law, has sentencing guidelines for up to 18 months in jail and fines of up to $10,000.

Under current law, possession of between 1 pound and 5 pounds is punishable with imprisonment between 3-5 years or fines up to $25,000, or both.

These bills come a few months before the upcoming 2020 presidential election, where voters will decide whether recreational marijuana should be legalized for adult-use. Currently, polling has support for legalization at 67% among NJ residents.

Duane Morris has a robust Cannabis Practice Group to assist clients in all facets of the cannabis arena including formation, licensing, fund raising, regulatory, real estate, and intellectual property. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

For Further Information:

If you have any questions about this post, please contact Brad A. Molotsky, Paul Josephson or the attorney in the firm with whom you are regularly in contact.

Be well and stay safe!

All About Legal Cannabis and Cannabis Beverages

Seth Goldberg
Seth A. Goldberg

Beverages infused with cannabis are becoming increasingly popular categories in both the beverage and cannabis industries. However, the regulatory regime resulting from the federal prohibition of cannabis inhibits the growth of this category in unique ways. Seth Goldberg, a Duane Morris trial partner and Team Lead of the Cannabis Industry Group, was a guest of the popular alcohol industry broadcast “On & Off” to discuss the current state of the cannabis industry, the rising popularity of cannabis beverages, and unique aspects of cannabis beverage regulation.

NY State Department of Taxation Creates New Webpage with Information on the Adult-use Cannabis Excise Tax.

New York State Department of Taxation and Finance has created a new webpage with information on the Adult-use cannabis products excise tax.

This cannabis excise tax will apply to both:

    • Distributors of adult-use cannabis products on sales of retailers, and
    • Adult-use retailers on sales to retail customers. 

If you plan to sell adult use cannabis you must register with the Department of Taxation (which is in the process of developing an online registration process and other guidance.   More information is available on the NYS Department of Taxation website  (https://www.tax.ny.gov/bus/auc/) 







NY Adult 

Duane Morris Helps Steer Harborside’s Purchase Of Calif. Co. Loudpack

California cannabis retailer Harborside Inc. announced Tuesday that it had closed a deal to purchase cannabis manufacturer and distributor Loudpack in a cash-and-stock deal steered by law firms Duane Morris LLP, Aird & Berlis LLP, Cassels Brock & Blackwell LLP and Feuerstein Kulick LLP.

[…]

Under the terms of the deal, Harborside acquired all equity in Loudpack through the issuance of approximately 91 million subordinate voting shares and 2 million warrants, which can be used to purchase subordinate voting shares at $2.50 each within the next five years. Harborside also assumed $50 million in Loudpack’s debt and paid approximately $5 million in cash.

The deal adds 15 new California retail locations, manufacturing facilities and 230,000 square feet of cultivation space to Harborside’s portfolio.

Harborside, which currently trades on the Canadian Securities Exchange and the OTCQX, a U.S. over-the-counter exchange, is expected to change its name to StateHouse Holdings by the end of the month, the company said.

Harborside received legal counsel from Aird & Berlis LLP and Cassels Brock & Blackwell LLP in Canada and Duane Morris LLP in the U.S., led by partner Nanette Heide.

To read the full text of this article, please visit the Law360 website (subscription required).

2022 Trailblazers Cannabis Law: Nanette C. Heide

Duane Morris partner Nanette Heide was named to The National Law Journal‘s list of 2022 Cannabis Law Trailblazers.

What was the genesis of the idea/path that has made you a trailblazer?

The Cannabis industry continues to be a trailblazer industry as a whole but the companies and transactions have grown larger and more sophisticated, making experience with complex mergers and acquisitions and securities laws more important than ever. As a corporate partner in a large law firm that has embraced the cannabis industry for many years, utilizing my knowledge and experience from private equity investments, mergers and acquisitions and securities laws allows me to bring this substantive knowledge to transactions in the cannabis industry.

To read the full text of this interview, please visit the firm website.

Key Cannabis Industry Projections and Trends from the New Frontier Data’s Recently Released 2022 U.S. Cannabis Report

Key Cannabis Industry Projections and Trends from the New Frontier Data’s Recently Released 2022 U.S. Cannabis Report

    • With a combined 148 million Americans living across those 19 adult-use states, and 248 million living across the 39 medical-use states, 44% of American adults now have access to legal adult use cannabis, and nearly three-quarters (74%) of the country now have access to legal medical cannabis in some form. Conversely, 89 million Americans (26% of the U.S. population) live in states where possession and use of cannabis remain illegal.
    • The US legal marijuana industry could surpass $72 billion by 2030 (assuming that an additional 18 states will legalize adult-use marijuana or comprehensive medical marijuana programs by then (with the current legal states reaching $57 billion by 2030), up from $32 billion this year.
    • Self-reported usage rates have risen sharply since 2012, and if this is sustained, the number of U.S. consumers will grow from 47 million in 2020 to 71 million by 2030.
    • U.S. medical markets continue to expand, with the number of registered patients forecast to increase to 5.7 million in 2030 (1.6% of the adult population).
    • Assuming legalization in all 18 potential markets by 2030, 47% of total demand would be met by the legal cannabis purchases, up from 27% in 2021, indicating continued disruption of illicit markets.
    • Despite strong state-level momentum, the near-term prospects for federal reform are dim, but a limited measure, like cannabis banking reform, is possible following the 2022 mid-term elections.

Why Cannabis Beverages are a Good Bet

Seth Goldberg
Seth A. Goldberg

Constellation Brands, Boston Beer, Molson Coors, PepsiCo, Jones are some of the beverage companies betting on drinks with THC or CBD, adding them to their beverage product lines, as are cannabis drink makers like CANN Social Tonics, Keef, and Artet.  Here’s why:

Just about everyone enjoys socializing with a drink in their hand. Wherever people are gathering, from couples to small groups to large events, whether at a bar, cocktail party, friends/family get together, a game or other outing, most people have a drink in their hand.  Years ago cigarettes were as ubiquitous in social settings, but those days are long gone – smoking, because of its health effects and smell, has become obsolete if not shunned.   The same stigmas seem even more pronounced when it comes to smoking or vaping cannabis, plus there is the added stigma of “getting high,” which, for some reason, as a general matter, seems less socially acceptable than “getting drunk.”  Cannabis drinks are not burdened by these stigmas.

Moreover, just like alcoholic beverages, cannabis drinks allow the consumer more control over their psychoactive experience.  Just as consumers use beer, wine, and spirits for a range of intoxication, cannabis drinks can be consumed in the same way.  A few sips of a cannabis beverage with 10 mgs of THC may be enough for some to get a slight euphoric buzz that does not interfere with their socializing like a beer or two might give someone a slight buzz that does not interfere with their socializing.  In this way, cannabis beverages stand in contrast to high-THC products like vapes, butter, and shatter, just as shots of tequilla, vodka, and jager stand in contrast to beer and wine.

Cannabis drinks are a good bet because they largely avoid the stigmas of smoking and getting high, and, in so doing, make THC and CBD accessible to consumers who have withheld from using cannabis because of them.  Add to that the flexibility and control of micro-dosing, and cannabis drinks become more appealing to more people in more social situations.  This is why beverage companies and cannabis companies are betting on cannabis drinks.

 

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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