As California prepares to raise marijuana tax, Mendocino County cannabis entrepreneur calls for tax revolt

Fresh off of news that California is set to raise the cannabis cultivation tax despite projections of a $31 billion surplus, one marijuana entrepreneur is calling for a potential tax revolt this summer.

Michael "Mikey" Steinmetz, co-founder of the company that makes the Flow Kana cannabis brand, is threatening to withhold his taxes unless Gov. Gavin Newsom and the Legislature adjust state marijuana regulations July 1, 2022. He is calling on other CEOs to join him in this effort.

Steinmetz issued the declaration in an op-ed on Medium, published Monday and co-written by his wife, Flavia Cassani. He criticized the California Department of Tax and Fee Administration's plans to increase the cultivation tax this January, writing "We simply reply: We're not going to pay."

Retail marijuana is taxed four times in California: a state and local excise tax paid by buyers, a sales tax paid by customers and the cultivation tax that growers pay. Growers want changes to the cultivation tax because they pay it before they make a sale.

California's current cannabis cultivation tax is $9.65 per dry weight ounce for cannabis flower, $2.87 per dry weight ounce for leaves and $1.35 per dry weight ounce for cannabis plants. That will increase to $10.08 for flower, $3 for leaves and $1.41 for plants beginning Jan. 1.

The increased rates "reflect as an adjustment for inflation as required by the Cannabis Tax Law," according to the department.

The proposed increase has drawn condemnation from cannabis advocates, including California NORML, whose director Dale Gieringer said in a statement, "The legal industry is already so burdened by excessive taxes and regulation that it cannot compete with unlicensed marketers. California needs to be reducing, not increasing cannabis taxes to make the legal market more competitive."

What Flow Kana wants

In his op-ed, Steinmetz calls for the cultivation tax to be eliminated and for the state to issue a three-year tax holiday for the cannabis excise tax.

California's revenue from marijuana taxes is soaring, up 26% over last year. California collected $333 million in total cannabis taxes in the second quarter of 2021, up from $264 million in the same period last year, according to the California Department of Tax and Fee Administration.

Steinmetz also wants to see the state overturn the local control provision of Proposition 64 — the 2016 ballot initiative that legalized adult-use cannabis in the state — that allows for cities and counties to decide for themselves whether to allow marijuana operations within their jurisdictions.

"There's a real path that can be followed and real change can be achieved. The solution to these issues and the possibility of saving this industry lies in Governor Newsom's hands. We are calling on him to save California's cannabis industry so that we can restore our California to its global cannabis leadership position," Steinmetz wrote in his op-ed.

In an interview with The Bee, Steinmetz said that his proposed tax revolt is a last resort. He said that he is prepared to work with Newsom and state lawmakers to craft legislation — which he says would require a two-thirds vote in both the State Assembly and the State Senate — to make the reforms he is proposing happen.

"We can literally do this legally, do this properly, and do it together," Steinmetz said.

Should the state not take action, Steinmetz in his op-ed wrote that he will place his estimated cultivation tax proceeds into an escrow account until action is taken.

Local control

Steinmetz's proposal comes as California cities and counties have adopted a patchwork approach to legalization within the state. According to Hirsh Jain, of Ananda Strategy, out of 482 cities in California, just 174 allow any kind of licensed cannabis business within their jurisdiction. Only 115 of them have licensed retail stores within city limits.

In his op-ed, Steinmetz wrote that the idea of local control has backfired, with Californians unable to buy cannabis at a dispensary in 68% of the state.

"The only way to fix this is overriding local control and trusting the majority of California citizens, who voted in favor of cannabis legalization, and wish to see this industry thrive," Steinmetz wrote in his op-ed.

That proposal is likely to face an uphill battle with the League of California Cities, which has argued that the guarantee of local decision-making regarding cannabis was a key part of Proposition 64..

"In fact, to win additional support for the measure, the authors amended the original language to include the explicit right of cities and counties to ban marijuana-related businesses entirely if they chose to. So, if a city or county refuses to license cannabis companies in their jurisdiction, this is entirely in line with what voters approved when they legalized adult-use cannabis in 2016," said League representative Elisa Arcidiacono in a statement.

Arcidiacono said that her organization supports the rights of cities to determine locally what is best for them, and said that forcing them to accept cannabis stores against their will would be to defy what Californians voted for in 2016.

Steinmetz acknowledged that what he is proposing is unorthodox.

"In life it takes crazy people to do crazy things," he said.

Steinmetz said that he is not approaching this issue as a revolutionary, but as a problem-solver. He said he doesn't want a fight with the state, but that he is prepared to do what he feels is necessary to enact change.

"It's a white flag that we're raising that will turn red by July 1," Steinmetz said.