With federal legalization now (perhaps) a far-off pipe dream as Republicans descend into the White House and Congress to assume full control of the government, one of the chief hopes for California\u2019s badly ailing pot industry has (perhaps) been dashed.<\/p>\n\n\n\n
While it wouldn\u2019t solve every problem, by a long shot, federal legalization would at least open up new markets for cannabis companies that are prepared to import and export their products, and at least theoretically give a big boost to smaller firms, too, including local dispensaries.<\/p>\n\n\n\n
With an unstable federal government led by a lunatic, it\u2019s impossible to know for sure whether legalization might happen despite general GOP opposition. But the prospects don\u2019t look good, and that leaves California pot companies sitting with the problems they\u2019ve had ever since California voters legalized weed eight years ago (that is, but for a few bright spots, like during the worst of the Covid pandemic, when sales soared). And yet more problems might be on the horizon.<\/p>\n\n\n\n
The bad news continues to pile up: bankruptcies, layoffs, cutbacks, high prices, thin profit margins and enormous losses. Public companies like the Salinas-based Lowell Farms have laid off tons of people (nearly half the workforce in Lowell Farms\u2019 case). Lowell reported a loss of $3.6 million in its most recent quarter. Gold Flora, meanwhile, reported a quarterly loss of a swoon-inducing $18.8 million and the Costa-Mesa-based company is reportedly having trouble paying its debts (at least one lawsuit<\/a> alleges that, anyway). The company also announced that it would be trimming its staff by 10%.<\/p>\n\n\n\n All that combined with other grim news led John Schroyer of the trade publication Green Market Report<\/em> to wonder \u201chow long until more of them join the conga line into receivership and bankruptcy?\u201d<\/p>\n\n\n\n Probably not long. This situation is not what anyone expected (or promised) in 2016. The reasons for it are the same intertwined ones the California industry has been facing all along: high taxes, the state\u2019s \u201chome rule\u201d provision (which allows local governments to ban cannabis companies from setting up shop), and the continued success of the illicit pot industry, where people can get their weed cheaper and, often, with less hassle.<\/p>\n\n\n\n Some of these problems could be solved, or at least lessened, with government action. Lowering taxes, for example. But the state government is doing the precise opposite. The industry and consumers alike have complained all along about the state\u2019s 15% excise tax on weed, which comes on top of the regular sales tax and any additional local taxes.<\/p>\n\n\n\n So with the industry in crisis, you\u2019d think maybe the Legislature and governor would be looking for ways to lower it, right? Wrong. The tax is set to increase<\/em> to an outright insane 19% in July barring some intervention in the Legislature in the coming session. This is part of the bargain that was reached in 2022 when the state eliminated the cultivation tax, which was itself ruinous\u2014particularly for growers, but really for the whole industry.<\/p>\n\n\n\n Adding four points to the excise tax doesn\u2019t seem like much of a bargain, though. All it will do is send more people back to the illicit market, and the ones who buy from dispensaries are refusing to pay more than they already are, meaning that the additional cost will be borne entirely by the industry.<\/p>\n\n\n\n There is a huge effort under way to forestall the increase, but it\u2019s impossible to tell at this point how successful it might be. Dustin Moore, a founder of the Embarc chain of dispensaries, told Green Market Report<\/em> that the potential increase represents \u201can existential threat to the industry.\u201d<\/p>\n\n\n\n