Date: July 1, 2022

Subject: Cannabis Trailer Bill Signed Into Law!

After an exhaustive effort, AB 195 (Budget Committee) passed the Legislature with bi-partisan support and was signed into law by Governor Newsom. 

AB 195 took effect immediately following the signature of the governor, providing the legal cannabis industry some much-needed temporary tax relief, which began July 1, 2022.  

While imperfect, we achieved some significant victories, which we should be proud of. In less than a month, CCIA was able to advance meaningful changes to the cannabis tax reform plan, as proposed by the governor.

CCIA has been lobbying for the elimination of the cultivation tax since it went into effect four years ago. Zeroing out the cultivation tax indefinitely and shifting excise tax collection from distribution to retail are big wins for our industry! We also achieved tax relief for at least three years, successfully pushed back on an automatic tax increase, which would have taken effect in 2024, bolstered enforcement against unlicensed operators, and provided additional relief for social equity operators.  This was not an easy undertaking and we should be proud of our collective advocacy efforts.

But, our work is far from done. CCIA’s lobbying efforts would not have been possible without the dedication and support of our members. Together we will continue to vigorously advocate on behalf of the legal industry.

Cannabis policy reform is never easy. Meaningful change takes relentless persistence and dedication.  There has never been a more important time to come together and fight. The survival of the regulated industry is vital to providing stable tax revenues for the State and to the advancement of public health and safety.

As a CCIA member, you are an essential part of the advocacy process. Your experience and insights are critical and our united voice will amplify your concerns.  Come share successes and your struggles in one of our committees. This is where dynamic discussions and member-driven recommendations are developed.  If you’re not a member of the organization now is the time to join!

Additional bill information:

• Future Excise Tax Changes: Cannabis excise rate will remain at 15% for three fiscal years; however, it may be increased after July 1, 2025 to offset the loss of the cultivation tax revenue.
• Social Equity: Equity licensees will be able to retain 20% of the excise taxes they collect to reinvest into their businesses. They will also be eligible for a $10,000 tax credit.
• Tax Credits: Includes $40 million in tax credits, of which $20 million will be earmarked for tax credits for qualified storefront retail (Type 10) and microbusinesses (Type 12) dubbed cannabis “high road” employers, and $20 million for cannabis equity operators. The bill allows qualified businesses to claim tax credits of up to $250,000 for qualified expenditures beginning in the 2023 taxable year. 
• Enforcement: Adds additional enforcement tools against the illicit cannabis market, modeled after legislation introduced in the Assembly. Specifically it states that a person who knowingly rents, leases, or makes available for use, with or without compensation, the property, building, room, space, or enclosure for the purpose of unlawfully cultivating, manufacturing, selling, storing, or distributing cannabis is subject to civil penalties of up to $10,000 per day for each violation. The bill authorizes a county counsel to file a civil action relating to unlawful water pollution and unauthorized water diversions due to unlicensed cannabis cultivation on behalf of the state. 
• Labor Protections: The bill lowers the LPA threshold requirement from 20 to 10 non-management employees.
• State Reporting Requirements: Imposes additional reporting requirements on the state Cannabis Tax Fund providing greater accountability and transparency, so the industry and the public knows how cannabis tax revenues are being spent.
• Minimum Baseline: Maintains the $670 million minimum baseline for Allocation 3 (tax revenue to environmental groups, youth prevention groups, and law enforcement) until 2028 and will set aside $150 million General Fund to backfill any revenue loss associated with the zeroing out of the cultivation tax. 
• Economic Impact Study. Requires that an economic study  be conducted to measure the impacts of tax reform on tax revenues.
• Retail Access: Establishes a $20 million Cannabis Retail Access Grant Program to encourage cities and counties with existing bans on commercial cannabis retail to implement retailer licensing programs with funding prioritized for jurisdictions that incorporate social equity programs.