This Is A Supply Demand Mismatch, Not A Tax Issue

The Cannabis industry has come to both Sonoma County and the State of California asking for tax relief.   The industry claims the recent drop in prices makes their cultivation taxes unaffordable.   Taxes are not their real problem and tax relief in not the real long term solution.  ‍

In reality, their problem is not a tax problem but a supply-demand problem.  By the industry’s own admission, cannabis operators are a victim of their own success.  2020 was bumper year, prices up, sales up - not a peep about taxes.   For 2021 they increased production, far exceeding what the market could absorb which drove down the cannabis prices to a point they feel taxes are too high.

Let’s hear from the Horse’s Mouth, the Cannabis industry:

MJ Biz Daily Quote from Sebastopol grower on 2021 production levels:

“Because prices were so good in 2020, people upped production in 2021. In 2020, we all got the Ferrari and drove it around the block. There was a lot of money to be made last year. But 2021 is a pretty dismal season for the California market. There is still full-season cannabis on the market from 2020.”

Article from a Cannabis industry analyst on the 2021 market sales now trending down:

“Adult use cannabis sales slip from 2020 pace after lackluster summer" ...“analysis of sales data from the states and Headset, a Seattle-based analytics firm, show that 2020 growth in five Western states began declining after May of this year [2021]”

View from the Growers Alliance on the reason for the industry’s problem:

DeLapp attributed the dramatic fall in price to “massive overproduction” across the state. “California farmers are producing four to five times more cannabis than our legal market can consume,” she said. “Simple supply and demand economics demonstrates when your supply outpaces your demand, the prices go down. ….”  “The bulk of this overproduction is attributable to large-scale farms outside the Emerald Triangle, on the Central Coast and elsewhere, where it’s common for single farms to be permitted for dozens of acres. These areas are continuing to bring hundreds of acres of new production online despite the fact that there’s no market for new large-scale production.”

The growers face a supply/demand problem, not a tax problem. Cannabis taxes are the price of legitimizing the industry. Lowering taxes effectively means taxpayers will be subsidizing this industry.