California's Legal Pot Growers Ask Gov. Newsom for Tax Breaks, Say Industry May Collapse

Dozens of executives, industry officials and legalization advocates in California's legal cannabis industry sent a letter to Governor Gavin Newsom on Friday requesting additional tax breaks and other governmental support, claiming "our industry is collapsing."

The letter said the significant amount of regulations and taxes imposed on the industry forces it to have prices that are much higher than what can be purchased illegally. The marketplace to buy marijuana illegally generates two to three times the amount of sales that the legal industry can, according to the letter.

"The opportunity to create a robust legal market has been squandered as a result of excessive taxation," the letter said. "Seventy-five percent of cannabis in California is consumed in the illicit market and is untested and unsafe."

They requested a removal of the cultivation tax for growers and government support for the expansion of more retail stores, as an estimated two-thirds of cities in the state do not have a dispensary due to a requirement that stores and production facilities must be approved at the local level. The letter also requested a three-year hold on excise taxes.

"We need you to understand that we have been pushed to a breaking point," the letter said.

They requested that their proposed changes be included in Newsom's next state budget proposal, set to be completed early next year.

Erin Mellon, a spokeswoman for Newsom's office, released a statement saying the governor understands the changes needed in the system and supports tax reform for the industry, as well as harsher enforcement against the illegal market.

"It's clear that the current tax construct is presenting unintended but serious challenges. Any tax-reform effort in this space will require action from two-thirds of the Legislature, and the governor is open to working with them on a solution," Mellon said.

California, Gavin Newsom, Legal Marijuana, Taxes
Leading California cannabis companies on Friday warned Governor Gavin Newsom that the state's legal industry was on the verge of collapse and needed immediate tax cuts and a rapid expansion of retail outlets to steady the marketplace. Above, a mature marijuana plant flowers under artificial lights prior to harvest at Loving Kindness Farms in Los Angeles on May 8, 2020. Richard Vogel/Associated Press File

Four years after broad legal sales began, "our industry is collapsing," said the letter, which also was sent to legislative leaders in Sacramento.

The current system "is rigged for all to fail," they wrote.

Companies, executives and groups signing the letter included the California Cannabis Industry Association, the California arm of the National Organization for the Reform of Marijuana Laws, the Los Angeles-based United Cannabis Business Association, Flow Kana Inc., Harborside Inc. and CannaCraft.

In a conference call with reporters, Darren Story of Strong Agronomy said tough market conditions forced him to cut loose more than half his staff. He said taxes that will increase next year make it an easy choice for shoppers. With prices in the underground at half of those on legal shelves, he said "most consumers are going to take off."

"The solution to these issues and the possibility of saving this industry lies in your hands," the letter stated.

The Associated Press contributed to this report.

California, Gavin Newsom, Legal Marijuana, Taxes
Dozens of officials and advocates of California's legal marijuana industry sent Governor Gavin Newsom a letter on Friday requesting immediate tax cuts and policy changes to save the "collapsing" industry. Above, Newsom speaks during a news conference at Kingston 11 Cuisine on October 8 in Oakland, California. Justin Sullivan/Getty Images