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On Prop 64 and Price Increases

As of January 1, 2018, proposition 64 rules were officially implemented in the cannabis marketplace. The old proposition 215 medical marijuana rules were overridden by the new Adult Use regulations. The most immediately noticeable effects from the rule changes were twofold.

The positive is the fact that now anyone over the age of 21 can purchase cannabis products for personal use at any state licensed dispensary. No need for a doctor’s recommendation anymore… all you need is a valid government issued id. Access to cannabis products has literally never been easier. This is a monumental step forward, even from where we were with prop 215. Getting a doctor’s recommendation was not a major obstacle to most but it still required time, effort, and money. That has now been done away with, leaving any consenting adult over the age of 21 with the ability to head straight to the nearest dispensary without paying for a physician’s consultation first.

But all has not been so positive with the implementation of prop 64. Customers were confronted with substantial price increases at the start of the New Year. Many were taken aback by the increases as a lot of the existing medical marijuana patients were under the belief that the new regulations would not affect them and the existing prop 215 guidelines. Unfortunately, that was not the case. Proposition 64 implemented costly new taxes and regulatory actions in addition to permitting fees on the cannabis industry. What was a very lightly regulated industry has become the exact opposite overnight. Under prop 215, patients were required to pay state sales tax on their cannabis purchases and dispensaries were required to pay a local tax on all sales.

The new prop 215 regulations added in a multitude of new taxes and expenses to the industry. In addition to state sales tax and local cannabis taxes at the retail level, now customers are required to pay a cannabis excise tax which is calculated at the wholesale level. Initially, this figure represents a 24% increase in the cost of wholesale cannabis products. It doesn’t stop there though. Licensed cannabis growers must pay a cultivation tax of $9.25 per ounce of dried flowers and $2.75 per ounce of trim. In addition to these state level taxes, most local governments are implementing taxes of their own on every level from production to distribution to retail.

Taxes are only part of the issue when it comes to price increases in dispensaries though. Permitting fees were generally only required at the local level for dispensaries before the start of the new year. Now, under prop 64, there are both local and new state level permitting fees for cultivators, distributors, and retailers. These are substantial annual fees accruing on every level of the cannabis industry that simply did not exist under prop 215. The cost of these fees will undoubtedly find their way to the shelf via increases in wholesale cannabis costs throughout the state.

But this is still not the end of it. In addition to new taxes and permitting fees, prop 64 has found more ways to increase the price of cannabis. Stringent new packaging laws increase price at the wholesale level. Testing is now mandatory pre-distribution. Cultivators can no longer distribute their own product but must contract with a third-party company or acquire a costly distribution permit of their own. These are just some of the new regulations which are combining to drive the price increase in legal cannabis sales.

Whether or not proposition 64 is a lasting model of success in the California cannabis industry or a simply another stop along the way remains to be seen. Access to dispensaries has never been easier but at the same time cannabis products have never been more expensive. Both the ease of access and the increased prices are due to prop 64’s regulatory environment and tax schedule. Throw in the local government’s making their grab at a piece of the cannabis pie via local taxes and fees and unfortunately it appears as if the price increase in legal cannabis in the state of California is here to stay… for now at least.