By: Justin A. Santarosa and Jennifer Briggs Fisher
Gavin Newsom, Governor of California, released his proposal for the State’s budget today, outlining a number of items of importance for the California cannabis industry.
The most noteworthy proposal is regulatory consolidation. In an effort to improve and simplify regulatory oversight of commercial cannabis activity, the Governor’s office is proposing to consolidate the three licensing entities that are currently within the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health, into a single “Department of Cannabis Control” by July 2021.
Such a change would be welcomed by many operators in the State, especially vertically integrated operators who must now contend with multiple state agencies that have different regulatory requirements and interpretations. This may also boost M&A activity in the state, given that it could lead to more consistent regulations regarding ownership changes and a more efficient regulatory approval process. A single regulatory agency would also streamline fee collections and enforcement. More details on this proposal are expected in the Spring of 2020 and we will be watching closely for those updates.
Additionally, the budget looks to “fix” what many consider to be a broken cannabis taxation regime. The Governor states that the goal of the proposal is to reduce the tax collection burden on the cannabis industry and simplify the tax collection process. The proposed changes move the responsibility for the cultivation excise tax from the final distributor to the first, and for the retail excise tax from the distributor to the retailer.
While no changes to the tax rates are specified, the proposed budget does state that the Governor will consider other changes to the existing cannabis tax structure, including the number of taxes and tax rates. The California tax burden is viewed as one of the major inhibitors of the growth and success of the cannabis market in the state.
We will continue to monitor these developments as they unfold, so please check back for further updates and analysis.