Senator Wiener’s Legislation to Create Tax Credit for Commercial Cannabis Retailers Passes Senate
SACRAMENTO – Senator Scott Wiener (D-San Francisco)’s legislation, Senate Bill 1336, which establishes a carryforward tax credit for commercial cannabis retailers, has passed the Senate by a bipartisan vote of 26-3. It now moves to the Assembly for policy 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 alike to purchase unregulated products and leaving small, legal businesses to suffer. Under SB 1336, legal cannabis businesses will receive a tax credit that is 25% the amount of the following qualified business expenses paid or incurred for in a taxable year and not to exceed $250,000: 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 25% the amount of the following qualified business expenditures paid or incurred for in a taxable year and not to exceed $250,000: 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.
In the case where the credit allowed exceeds the net tax, the excess may be carried over to reduce the net tax in the following taxable year, and the seven succeeding years if necessary, until the credit is exhausted. This credit can be taken against applicable taxes until 2028. Additionally, the legislation disallows a business expense deduction or other tax credit for the same costs that generate the credit created by the bill.
“Prop 64 was a major step forward for cannabis access, but our legal retailers are in danger of losing business to the illicit market, in part due to high taxes,” Senator Wiener said. “SB 1336 will give legal businesses a much-needed leg up so Californians can continue to access safe and tested cannabis products.”