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Will Making All Cannabis Tax-Free Get People to Convert from the Illicit Market to the Legal Market?

The city government of San Francisco has unanimously voted to waive cannabis taxes for the next 13 months. This proactive decree is aimed at crippling the illegal cannabis market in the state.

It’s not hidden that many states still battle with illegal operators within the cannabis industry. Some areas in San Francisco are littered with unlicensed farms that make huge amounts of revenue without having a license or paying taxes. In addition to not paying for licenses or taxes, these illegal sites still manage to cut costs by hiring undocumented or minor workers who cannot complain about the poor working conditions on the farms.

With the new decree, all farms will be on the same level, and the illegal operations will have no edge over the licensed operations within the state. The country needs more of these bold moves!

A Brief Overview of San Francisco’s Cannabis Industry

San Francisco, California, has one of the biggest markets for medical cannabis in the state. There are dozens of dispensaries at strategic locations across the city, each generating high profits annually. In San Francisco, medical and recreational weed are available for sale to adults at least 21 years of age. San Fran dispensaries are prohibited from selling to minors and, most of the time, require valid IDs before any cannabis product is sold.

Despite the decriminalization of the drug, there are strict punishments for residents found driving under the influence of the drug or using it in public spaces. Cannabis is still classified as a prohibited substance federally, so it is illegal for the drug to be consumed in federally owned spaces. Although tourists come into the city to have a feel of the cannabis legal space, there’s still a gray area which they must avoid to ensure they are not banned from entering the US subsequently.

Curbing Illegal Marijuana Sales

Due to the high rates of illegal market activities, the city’s supervisors decided last Tuesday to conditionally halt the payment of the Cannabis Business Tax until December 2022. The council’s representative and the legislation’s author, Supervisor Rafael Mandelman, explained that this tax suspension is an efficient way to not only cripple illegal cannabis sales but, most importantly, to support legal cannabis operators.

Many legal operators do not make as much profit as they should because the illegal operators have rigged the system against them. Many illegal sales operators provide the same harvest quality to consumers at very low rates that most legal retailers struggle to compete with. The Cannabis Business Tax was established in November 2018 by the city’s voters. The legislation imposed a citywide tax on the gross sales of legal cannabis businesses that could range between 1 and 5 percent.

Effectively Solving a Persistent Problem

Supervisor Mandelman added that San Franciscans benefit a lot from the state’s cannabis industry. Legal businesses created more jobs, and residents had access to safer, more regulated products that could be traced back to a source.

In the statement, he expressed his sadness about how the illegal market seems to be performing better than the legal operators by undervaluing harvests and cutting costs on the major operations of a cannabis business. The persistent illegal activity of these illicit bodies is doing more harm to the city and its economy than any other factor.

These illegal farm sites subject their workers to poor working conditions and consumers to cannabis products made with some dangerous chemicals. This mobile move by the city’s council will do more to keep new legal cannabis businesses alive and in profit. It will give them an edge over the illicit operators in the state. 

It’s Not a Good Time for More Taxes

A new marijuana tax bill was supposed to go into effect at the start of the new year. Still, a survey of the current state of things in the legal industry indicates that this is the worst time to impose a new tax on small or existing legal cannabis establishments.

California’s Legislative Analyst office recently directly correlated the state’s cannabis taxes and the rise in illegal cannabis operations. With more imposed taxes, it was revealed that many individuals chose to set up shop illegally to save costs and bring in more profit.

The increasing levels of theft in legal cannabis farms and establishments are also another source of worry. A little less than a month ago, BASA, a cannabis retail company in Grove Street, was broken into by an armed group. Thousands of dollars worth of cannabis products were stolen. According to the security agents, this recent burglary was the latest in a series of thefts around that same location.Legal cannabis operators are competing with illegal operators for sales and still battling a series of thefts that seem to be getting out of control. 

Doing More for the Industry

It seems fair that the city’s board of supervisors has finally taken a stand to do right by legal cannabis establishments. Imposing a new tax within this period would have backfired, so it’s a win-win situation. Other policies and security measures can be put in place to safeguard these businesses and the individuals working there.

What’s more, is that Mandelman announced in the statement that his office would be working with the City Controller’s office, the Tax Collector’s office, the City’s Cannabis Regulations Office, the legal stakeholders in the industry, as well as other important individuals, to analyze and compare the data on cannabis business sales in the city as soon as this new order is implemented.

Final Note

The recent crime wave in the city, as well as the intense competition from illegal cannabis sales operators, has indeed put a strain on legal cannabis operations in the city.Within the next twelve months, small businesses will not be subjected to mandated taxes. They will gain footing in the industry without competing with illicit operations that do not pay any costs to the government.

Mandelman concluded his statement by disclosing that by the fourth quarter of 2022, a new set of recommendations for tax rates would be presented to the board. In addition to this, the cannabis industry might be restructured to help the industry retain its edge over the illegal industry.








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