You know we’ve talked about the tax rates before. No matter the legal state— the black market has begun to boom in spite of recreational status. Why? Because the tax rates are so high that buying on the black market is significantly cheaper. The solution, as we’ve discussed, is ultimately that of a lower tax rate. But, no one was willing to cut them… that is, until now. Berkeley, California is the first city to step up and say ‘hey, black market be damned— let’s beat them at their own game.’
Berkeley Takes on the Black Market with Lowered Tax Rates
The sales tax was cut by half for the city of Berkeley; from 10% to 5% as of this week. Keep in mind that the change is only to the city-level— as the rest of the state is not so bold to make the move. To Berkeley? The change seemed logical. Legalization only struck as of January 1st, but while the excitement was there— the sales were not. Non-medical patients have been buying their cannabis on the black market since the beginning of time. So, when prices were twice that of their dealers’ price— they scoffed and walked right on out of the dispensary.
Legal business takes a blow
California had it in mind that the mile-high tax rates would work wonders for the state. Tax revenue would be just what the state needs to get a boost like Colorado. However, Colorado’s tax rate is really only at 15%— whereas California’s is double that. So, while the motive is the same— the taxes are much higher. Therefore, people are taking their money elsewhere.
It’s something we predicted early on— that of high taxes on recreational cannabis drawing people out rather than in. To California, they hoped that legalized recreational would make most people put on those rose colored glasses and pay the tax man. But when you don’t have to… who would?
Berkeley takes a leap of faith
State taxes don’t change. Therefore, while Berkeley cut local taxes, there will still be a 30% tax when it’s all said and done. But, it is lower than that of their neighbors. So, there is the increased chance for customers. But, with state taxes still posing a pretty significant increase on the price— the change wasn’t really enough to fully rock the boat.
Ultimately, the only solution is to continue to lower the tax level. Cities should not be having to cut down their minimal taxation because the state won’t budge. The 25% tax on top of a necessary city level cut makes the price pretty unfathomable. Especially to someone who has been buying from their dealer at the same rate for years now. So, in the end, the taxes are what keeps the black market booming. In the end it all comes down to the tax man. When he moves, the state will flock to the dispensaries. But for now, the black market continues to reap the benefits of a greedy system.