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When California voted to legalize marijuana, it did so in exchange for some of that tax revenue going towards youth groups. Governor Gavin Newsom recently lowered the state's cannabis tax from 19- to 15%. It will mean relief for an industry that some claim is already overregulated. But the organizations and kids who rely on those tax dollars are now feeling betrayed. KQED's April Dembosky has more.
APRIL DEMBOSKY, BYLINE: At CannaCraft in Santa Rosa, the manufacturing floor is a scene out of Willy Wonka's weed factory.
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DEMBOSKY: An industrial machine originally made for weighing M&M's is used here to parse watermelon pot gummies into three-ounce portions. Tiffany Devitt heads up regulatory affairs. She says buying machines like this have helped with labor costs, and they needed that help.
TIFFANY DEVITT: If we weren't able to do that, our razor-thin margins would not be tenable.
DEMBOSKY: Devitt says operating in California's legal pot market is like walking an economic tight rope. Labor laws are strict. Testing and compliance is expensive. Taxes are levied at almost every stop in the supply chain. First, the farmers...
DEVITT: That's a local cannabis cultivation tax.
DEMBOSKY: ...Then the gummy makers...
DEVITT: Manufacturing tax.
DEMBOSKY: ...The distributors...
DEVITT: What they call a road tax.
DEMBOSKY: ...And finally, the dispensaries.
DEVITT: Local cannabis retail tax.
DEMBOSKY: Then the state tax kicks in at the end, when you buy it.
DEVITT: End of the day, you end up with a total tax burden of around 40%.
DEMBOSKY: The result, Devitt says, is that legal products cost three times more than illegal ones.
DEVITT: Consumers are price sensitive, right? You raise the prices, they go to the illicit market, and they're like, oh, this works for me. It's a lot cheaper. Buy it from Uncle Joe (ph).
DEMBOSKY: This is why state lawmakers lowered the state cannabis tax from 19- to 15%, hoping the legal market can regain enough of a foothold to compete with the black market. But that breaks a promise made to Californians. Voters agreed to legalize marijuana in exchange for investing some of that tax revenue in youth drug prevention and other programs. The tax cut will strip those groups of $180 million a year.
LETICIA AGUILAR: It's taking directly from our youth.
DEMBOSKY: Leticia Aguilar runs Native Sisters Circle, an after school program for Indigenous girls in Sacramento. It gets 80% of its funding from the pot tax. Angelina Hinojosa joined the group several years ago, in part to get away from all the weed at her high school.
ANGELINA HINOJOSA: Everybody smoked. Even people that played sports smoke. And if you're already a marginalized group, it's so easy for you to get sucked into that crowd. It's so easy.
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DEMBOSKY: Learning how to sew traditional skirts and weave baskets gave her a new sense of identity outside of drugs.
HINOJOSA: Therapy didn't help me. Counseling didn't help me. For me, when I basket weave, everything goes away. I feel like that's prevention.
DEMBOSKY: But not everyone thinks the tax cut will hurt youth groups. Some think the groups might actually do better. Here's UC Davis economist Robin Goldstein.
ROBIN GOLDSTEIN: It sort of sounds intuitively like, if we tax it at 15% versus 10%, of course we're going to collect more tax revenue, right? But not necessarily.
DEMBOSKY: Lower taxes could actually drive more sales in the legal market and push tax revenues higher. The thing is, no one knows exactly what the magic number is.
GOLDSTEIN: It's a judgment call.
DEMBOSKY: Montana bet on 20%; Maine and Minnesota, 10%. California lawmakers settled in the middle at 15. They hope cutting the state cannabis tax will yield more money for youth groups in the long run.
For NPR News, I'm April Dembosky in Sacramento. Transcript provided by NPR, Copyright NPR.
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