LOS ANGELES — Amid concerns that California’s cannabis industry is overtaxed and on the brink of collapse, children’s and youth advocates say cutting marijuana taxes could put badly needed social service programs in jeopardy.
Small cannabis farmers and business owners have repeatedly asked the state to overhaul the industry’s tax system as they struggle to stay afloat with rising operating and regulatory costs.
As of Jan. 1, cannabis is taxed at a flat rate of about $161 a pound, on top of a 15 percent excise tax, as well as local cultivation, manufacturing, processing, distribution and retail taxes. The state raked in nearly $1 billion in cannabis tax revenue during the first three quarters of 2021.
Last month, Gov. Gavin Newsom said he supported cannabis tax reform and planned to work with the Legislature to modify policies. Lawmakers have also rallied to support the industry and have already proposed at least one bill that would change the current structure.
Service providers for low-income and at-risk youths say they oppose any cuts, because their programs rely heavily on money collected from Proposition 64, the 2016 ballot initiative that made recreational cannabis legal in California.
“We’ve heard a lot about the impact to the cannabis industry but have heard little to no impact to those who benefit from these taxes,” Mary Ignatius, the statewide organizer for Parent Voices California, which advocates for affordable child care, said at a news conference Wednesday.
Marianna Hernandez, a prevention manager at Community Coalition, an advocacy and social justice group based in South Los Angeles, said cutting services would be “an insult” to those disproportionately affected by the “war on drugs.”
“South L.A. was once overcriminalized for cannabis use, sale and possession,” she said. “To now strip the community of the resources coming from the tax revenues is, quite frankly, an insult to South L.A. Black and brown residents, many of which still have family members incarcerated to this day due to marijuana-related charges.”
In the state budget for fiscal year 2021-22, nearly $400 million in revenue from California’s cannabis taxes will go to child care and prevention services for thousands of children in poverty. That includes more than $279 million allocated to the Department of Social Services for child care and nearly $81 million for youth prevention programs supported through the Department of Health Care Services.
Combined, more than 21,000 low-income children across the state benefit from child care services programs, but as many as 2.3 million could be eligible, Ignatius said.
“That’s why these Prop 64 dollars are so critical,” she said. “Any cuts to cannabis tax rates will result in cuts to child care for mostly children of color living in poverty who need that access now more than ever.”
But movement is already underway to reform cannabis taxes in California.
On Tuesday, the San Diego City Council voted in favor of lowering a city tax on new production facilities from 8 percent to 2 percent in hope of encouraging more indoor farms and factories to move into the area.
On the same day, state Sen. Mike McGuire introduced a bill that would eliminate California’s 15 percent cultivation tax as of July 1 and increase the excise tax by an amount that would generate only half the revenue the cultivation tax would have provided.
McGuire’s office did not immediately respond to a request for comment Wednesday.
More reform bills are likely to be introduced in the coming year that could threaten services to communities hit hardest by mass incarceration and poverty, said Jim Keddy, executive director of the advocacy organization Youth Forward.
“Not only does cannabis tax revenue play a crucial role in funding child care, but it is also a primary funding source for services for the formerly incarcerated, youth prevention services, job training and other critical support systems in communities of color that have been impacted by the war on drugs,” Keddy said.
“In downturn years, kids living in poverty, kids of color, those programs get cut,” he added. “That’s why this revenue stream is so critical now.”
Keddy was among dozens of advocates and service providers who sent an open letter this week asking Newsom and legislative leaders to reconsider overhauling the state’s cannabis tax system.
They warned that “if the industry is successful in persuading state leaders to lower, suspend and/or eliminate the tax rates approved by voters in Proposition 64, we will see an immediate, negative impact on thousands of children living in poverty and children of color across our state.”
“Any reduction in cannabis taxes will directly harm the most vulnerable communities in our state and will deepen racial and economic inequities,” they wrote. “For these reasons, we are opposed to the proposal put forward by the industry and ask that you take into account the impact of the proposed policy on children, youth and families.”