Senator Wiener’s Bill to Create a Tax Credit for Commercial Cannabis Retailers Passes the Senate
SACRAMENTO – Sen. Scott Wiener’s (D-San Francisco) legislation, Senate Bill 1336, which establishes a deferred tax credit for commercial cannabis retailers, passed the Senate by a bipartisan vote of 26 to 3. He is now traveling to the Assembly for political hearings.
Due to the high taxes levied on the legal sale of cannabis, commercial prices often cannot compete with the illicit market, leading recreational users and patients to purchase unregulated products and leaving small legal businesses to suffer. Under SB 1336, legal cannabis businesses will receive a tax credit equal to 25% of the amount of the following eligible business expenses paid or incurred in a tax year and not exceeding $250,000: employment compensation, safety-related equipment and services, and employee workforce development and safety training. SB 1336 is sponsored by the Western States Council of the United Food and Commercial Workers (UFCW).
SB 1336 recognizes the challenges faced by commercial cannabis retailers and lends a helping hand to a unique and important part of California’s economy. In 2016, voters approved Proposition 64, to legalize the recreational use of cannabis by adults and impose two types of taxes on commercial cannabis sales: a cultivation tax and an excise tax. While these taxes generated $1.75 billion in revenue for the state between January 2018 and August 2021, they also created a significant increase in legal cannabis, giving way to gray and black markets with much lower prices. . Without a tax credit for those who sell legally, many commercial enterprises providing safe and regulated products may not be able to achieve their bottom line. This existential crisis for the legal industry will directly affect equitable access, especially for medical users who depend on safe and regulated cannabis products.
While approximately $8 billion in sales flow through California’s illicit cannabis market each year, the state’s legal market brings in about half that amount, struggling under the weight of its unlicensed and untaxed competition. Additionally, legal cannabis businesses often face overhead costs associated with health, safety, and security protections that other industries do not have. And because the sale of cannabis remains illegal at the federal level, these businesses are not eligible for tax deductions and credits related to normal overhead. Together, these issues have created serious pressure on the legal cannabis industry, and if these trends continue, employers will not be able to stay afloat.
This bill will establish a carryover cannabis tax credit equal to 25% of the amount of the following eligible business expenses paid or incurred in a taxation year and not exceeding $250,000: compensation of employees — that is equal to or greater than 150% of the minimum wage, including benefits — for company employees, safety-related equipment and services, workforce development and safety training for employees. These credits will help provide relief to surviving small businesses and ensure a more robust legal marketplace that provides greater access and security for consumers.
In the event that the credit granted is greater than the net tax, the excess may be carried forward in reduction of the net tax of the following taxation year and, where applicable, of the following seven years, until credit exhaustion. This credit can be deducted from applicable taxes until 2028. In addition, the legislation prohibits a business expense deduction or other tax credit for the same costs that generate the credit created by the invoice.
“Prop 64 was a major step forward for access to cannabis, but our legal retailers risk losing business to the illicit market, in part because of high taxes,” Senator Vienna mentioned. “SB 1336 will give legal businesses a much-needed boost so Californians can continue to access safe, tested cannabis products.”