Senator Wiener Introduces Legislation to Create Tax Credit for Commercial Cannabis Retailers

March 17, 2022

SACRAMENTO – Senator Scott Wiener (D-San Francisco) introduced Senate Bill 1336, which establishes a carryforward tax credit for commercial cannabis retailers. 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 alike to purchase unregulated products and leaving small, legal businesses to suffer. Under SB 1336, legal cannabis businesses will receive a significant tax credit equal to the amount of the following qualified business expenses: employment compensation, safety-related equipment and services, and employee workforce development and safety training. SB 1336 is sponsored by the United Food and Commercial Workers (UFCW) Western States Council.

SB 1336 recognizes the difficulties that commercial cannabis retailers face, and provides a hand to a unique and important part of California’s economy. In 2016, voters approved Proposition 64, to legalize the recreational adult use of cannabis and impose two types of taxes on commercial cannabis sales: a cultivation tax and an excise tax. Though these taxes generated $1.75 billion in revenue for the state between January 2018 and August 2021, they also have created a significant upcharge on legal cannabis, leaving room for grey and black markets with much lower prices. Without a tax credit for those selling legally, many commercial businesses providing safe and regulated products may not be able to meet their bottom line. This existential crisis for the legal industry will directly affect equitable access, especially for medicinal users who rely on safe and regulated cannabis products.

As an estimated $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. In addition, legal cannabis businesses often deal with overhead costs associated with health, safety, and security protections that other industries do not. And because the sale of cannabis remains illegal federally, these businesses are ineligible for tax deductions and credits related to normal overhead expenses. Together, these issues have created a serious strain on the legal cannabis industry, and if these trends continue, employers will not be able to stay afloat.

This legislation will establish a carryforward cannabis tax credit that is equal to the amount of the following qualified business expenditures paid or incurred for in a taxable year: employee compensation — that is equal to or above 150% of minimum wage including benefits — for the employees of the business, safety-related equipment and services, and workforce development and safety training for employees. These credits will help relieve small businesses just getting by and guarantee a more robust legal market that provides better access and safety for consumers.

 “Our legal cannabis businesses are facing hard times, and it’s time we stepped up to support them.” Senator Wiener said. “By ensuring their success, we can keep employees working for fair wages in good conditions, we can stop illegal and illicit sales from dominating the market, and most importantly, we can keep cannabis access equitable for all Californians.”

"UFCW members were the leading force behind the push for Proposition 64 in 2016 because we knew that a legal cannabis industry in California would provide workers with high road jobs that provided living wages, good benefits and an opportunity to save for their future," said Amber Baur, Executive Director, UFCW Western States Council. "SB 1336 aligns with that long-held vision by ensuring legal cannabis employers invest in their workers and provide safety for consumers and communities. We are proud to sponsor SB 1336 because we know California can continue to lead the nation's cannabis industry into the future and support struggling businesses.”