California marijuana to have 45 percent tax, could fuel black market sales

Oct. 31 (UPI) -- Marijuana is legal in California, but the state's taxes could be so high that illegal purchases will be more attractive to buyers, according to a report released Monday.

Global credit firm Fitch Ratings said in the report that marijuana taxes in California could reach as high as 45 percent -- and that could put legal sellers at a disadvantage to their illegal competitors.

"High tax rates raise prices in legal markets, reinforcing the price advantage of black markets," the firm said. "California's black markets for cannabis were well established long before its voters legalized cannabis in November 2016 and are expected to dominate post-legalization production."

Californians voted to legalize marijuana for recreational use in 2016 and licenses to grow and distribute the plant will be issued starting Jan. 1. The state will charge sales taxes ranging between 22-24 percent, including a 15 percent excise tax. Additional taxes will vary at the local level, and farmers will have to pay a tax of $9.25 per ounce for marijuana flowers and $2.75 per ounce for leaves.

Of the five states that allow sales of recreational marijuana, only Washington, with a tax of more than 50 percent, has a higher rate than California's. Colorado and Nevada have a 36 percent tax, followed by Alaska and Oregon with 20 percent.

High taxes on legal marijuana have already seen increased black market sales in Colorado.

"I don't know who is buying for recreational use at dispensaries unless it's white, middle-class people and out-of-towners," Rudy Reddog Balles, a Denver community activist, told The New York Times in 2014, soon after the state enacted legal sales of marijuana. "Everyone I know still has the guy on the street that they hook up with."

By July, Colorado had received more than $500 million in marijuana tax revenue since legal sales began in 2014.