Donated Cannabis May Get a Tax Break

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A bill on Governor Gavin Newsom’s desk could make it more affordable for cannabis operators to donate cannabis to medical patients. Senate Bill 34 would remove state taxes imposed on such donations by the fine print in the law that legalized adult use cannabis three years ago. 

To explain: In the early days of medical cannabis in California, there were no dispensaries. Patients who had a doctor’s recommendation, but lacked funds, often received cannabis through charitable programs that donated it.

But decades later, the legal framework that accompanied Proposition 64—which voters approved in 2016 to legalize cannabis for adult use—required all cannabis, whether sold for profit or donated, to be taxed the same, threatening the future of these programs by sticking licensees with a tax bill for their donated goods. In other words, operators are now forced to pay taxes on their donated medicine, creating a financial disincentive that has caused many of these compassionate care programs to shutter.

But a bill that squeaked through in the final days of the state’s 2019 legislative session, Senate Bill 34, could reverse that trend if signed by Newsom. The bill would exempt operators from paying state excise taxes, retail taxes, and cultivation taxes, if the cannabis or cannabis products are donated to patients with valid medical recommendations. Meanwhile, the donated product would still make its way through the legal track-and-trace system, bringing with it the same testing and packaging requirements as for-profit cannabis.

Last minute amendments included that the tax on cultivators, which at the moment is $9.25 per ounce of dry flower, $2.75 per ounce of trim, and $1.29 per ounce of fresh cannabis plant, to resume after five years.

Supporters argue that by discouraging cannabis operators from giving cannabis away to needy patients, the current law effectively pushes low-income patients to the illicit market. By removing the tax burdens, supporters say, low-income patients could stay legal and access safe, tested medicine. 

While the bill did not see any formal opposition, an Assembly committee found it would cost about $375,000 for the California Department of Food and Agriculture to alter the track-and-trace program to accommodate the shift, plus $400,000 in annual enforcement costs. The committee also said state coffers could lose “potentially in the millions of dollars” in lost tax revenue annually due to the tax breaks.

The same bill was introduced last year as Senate Bill 829, but was vetoed by then-Governor Jerry Brown, who argued that it undermined what voters intended when approving Prop 64 by further depressing tax revenue, which was already not meeting expectations. 

The bill’s author, Senator Scott Wiener of San Francisco, told Cannabis Wire that not long after adult use legalization hit he began to hear stories about compassionate care programs shuttering in the Bay Area. 

“But the more I learned about the issue, I learned it wasn’t just people living with HIV,” he said, referencing the patients the state’s medical cannabis program initially primarily served. “It was veterans living with PTSD, and other people who don’t have much money but need access to medical cannabis, and they were being priced out of the legal regulated market.”

His solution: Remove taxes on donated cannabis to ensure low-income people continue to have access.

Dale Gieringer, executive director of California NORML, told Cannabis Wire that Prop 64 brought with it taxes and regulations that make affordable access to medical cannabis more difficult for patients, flying in the face of the spirit of Prop 215, the state’s medical cannabis law since 1996.

The purpose of Prop 215, he said, “was to provide safe and affordable access to cannabis to all patients with medical need. And it’s a shame that under the regime that was adopted under Prop 64 that the costs of marijuana have really gone up for a lot of patients.”

Gieringer says he expects Newsom to sign the bill, which flew through both houses of the state legislature with overwhelming support. And Wiener said his office worked hand-in-hand with Newsom’s office and agency heads to craft the legislation and its final amendments.

The California Cannabis Industry Association is a co-sponsor of the bill. The organization’s spokesperson, Josh Drayton, told Cannabis Wire SB 34 would help honor the medical market that helped give rise to adult use cannabis in California by ensuring patients have access to tested, legal medicine.

“I don’t hear much fear about how this will affect the bottom line, how it’s going to affect finances,” he said. “I’m hearing more support to honor the patients, and to finally codify a pathway forward to ensure these patients have access to regulated cannabis.”

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