California Legalization

Will High Pot Taxes in California Fuel Black Market Sales?

It’s no secret that California is home to the largest marijuana black market in the country. It’s estimated the marijuana black market in California is worth well over $10 billion, something that will undoubtedly continue as long as weed is illegal in other states.

And although recreational cannabis rolled out in California as of yesterday, many people suspect that high taxes on legal pot will keep the black market flourishing.

New Report Suggests that High Taxes on Recreational Cannabis in California Could Fuel Black Market Sales

A report published last month highlighted this fact. It’s estimated that taxes on weed could be as high as 45 percent, which would be the second-highest taxes on recreational weed after Washington state.

Fitch Ratings, the credit agency who put out the report, said the following, “The existing black market for cannabis may prove a formidable competitor to legal markets if new taxes lead to higher prices than available from illicit sources.”

An eight of weed in California will run anywhere from $25-$40 buying it on the street. If California does indeed impose the high taxes it’s expected to, that eighth could cost around $60 or more.

High Taxes Make the Legal Market Less Competitive… Keeping the Black Market Alive and Thriving

Other financial analysts agree with what Fitch Ratings recently reported. According to CNN, John Kagia, analyst for New Frontier Data says, “If taxes increase the price of cannabis beyond a certain point, the legal market becomes less competitive than the illicit market and then consumers become less likely to make the transition from the illicit market to the legal market.”

Marijuana taxes in California will take place on both state and local levels. Aside from the 15 percent state sales tax on cannabis, consumers can expect to pay at least another 7.25-9.25 percent on the local level. The state will also enact cultivation taxes, making growers pay a tax of $9.25 an ounce on flower and $2.75 an ounce on leaves. This is something that will likely be passed on to the consumer, which analysts agree could make prices on legal cannabis even higher.

The black market for marijuana has been thriving since prohibition. And while many people believed it would be eradicated once weed was made legal, this hasn’t been the case.

“It’s almost certain that all of the states with recreational marijuana still struggle with the black market for marijuana because of its prevalence before legalization,” said Morgan Scarboro, a policy analyst for the Tax Foundation’s Center for State Tax Policy. She went on to add that high tax rates “will prevent the minimization of the black market”, also stating that state governments should “be open to evaluating their marijuana tax structures.”

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