California 2022/2023 Budget Bill Includes Changes Affecting the Cannabis Industry

As the California Legislature does each summer, a state budget is passed and the Governor signs the budget. As part of this arduous budget negotiation process, the Legislature often makes changes to law in order to implement policies and programs that are part of the budget. These so-called “trailer bills” often include new legislation. The 2022/2023 California trailer bill included important changes to the cannabis industry. Read below for a summary.

“Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat. Duis aute irure dolor in reprehenderit in sed.”

Cannabix Tax Reform

  • Beginning July 1, 2022, the cultivation tax is repealed.  Licensees still owe the cultivation tax on all cannabis that entered the commercial market prior to and on June 30, 2022.
  • Collection of and remittance of the excise tax will change from a distributor responsibility to a retailer responsibility on January 1, 2023.  I will let you know of any process steps as I learn of them.
  • There is no automatic increase of the 15% excise to 19% in three years as originally proposed.  In three years the excise tax will be reviewed.  There is still a possibility that other tax reform legislation will pass that would lower the excise tax. 

Labor Peace Agreements

  • The labor peace agreement requirement changes on July 1, 2024, from 20 or more non-supervisory employees to 10 or more non-supervisory employees
  • Beginning July 1, 2024, any applicant or licensee with 9 or fewer non-supervisory employees must sign a notarized statement that it will enter into and abide by a labor peace agreement within 60 days of hiring its 10th non-supervisory employee
  • On or after July 1, 2024, a cannabis licensee with 10 or more non-supervisory employees will not be eligible for license renewal unless the licensee has entered into a labor peace agreement with a labor union.

Social Equity

  • Social equity licensees will be able to retain 20% of the excise taxes they non-supervisory employee
  • They will also be eligible for a $10,000 tax credit.

Tax Credits

  • $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) called “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.

Retail Access

  • Establishes a Cannabis Retail Access Grant Program to assist cities and counties with existing bans on cannabis retail to implement retailer permitting programs.
  • The $20 million in funding will be prioritized in jurisdictions that have social equity programs.
  • This funding from the trailer bill is different that SB 1186 Medicinal Cannabis Patients’ Bill of Access Act that is still making its way through the legislative process. This bill would prohibit local jurisdictions from preventing delivery of medicinal cannabis to patients within their jurisdictions.

Additional Tools to Combat the Illegal Cannabis Market

  • The new legislation 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.
  • Makes illegal operators liable for unpaid taxes and persons involved liable for tax evasion.

Other State 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.
  • 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.
  • Requires that an economic study be conducted to measure the impacts of tax reform on tax revenues.
  • Updates to Metrc for delivery tracking.

This summary is just what was in the 2022/2023 trailer bill.  We’ll keep you updated about other legislation important to the cannabis industry.

Share To Social Media