Berkeley California Cuts Marijuana Taxes to Compete with Black Market

Cannabis buyers in Berkeley are getting a tax break as the city has dropped its taxes on marijuana from 10 percent to five percent. The main reason for the drop is to fight a booming black market. Berkeley is one of the only cities in the state to make the move.

The buzz surrounding January’s recreational cannabis sales seems to be fading; so too is consumer willingness to pay the higher taxes that came along with legalization.

“I think the sticker shock has been the issue for all of us really,” said Sabrina Fendrick of Berkeley Patients Group, a long-standing dispensary in the East Bay.

Fendrick says dispensaries cannot compete with black market pricing and worries this legal business that took years to establish could now be at risk.

“Everybody wants to generate revenue, we all want to serve our communities, but if everyone is going to the illicit market then nobody is generating revenue and nobody is being helped,” said Fendrick.

“A 35% tax is pretty excessive for anything,” said buyer Robert Fracisco, referring to the overall taxes on cannabis.

With Berkeley’s tax reduction, buyers now pay 30% in taxes at the counter. Cannabis taxes vary statewide from roughly 30% to as high as 45% in some cities. As of January, consumers have to pay a state excise tax, a cultivation tax, sales tax, and a city tax.

“The taxes I think are what’s driving people not to come to the club anymore,” said Fracisco. “I know a lot of my friends who used to come to the clubs are going back to the black market.”

This black market is by no means hard to find. Two clicks on Craigslist and you can buy an eighth of an ounce for nearly $20 less than at the dispensary.

There’s also a bill in the state assembly that would lower the state excise tax from 15 to 11 percent. Berkeley hopes its decision to lower taxes here will bring in more legal business and encourage other cities to follow suit.

Dispensary owners also argue there is a health risk involved with buying on the black market. Unlicensed dealers may be using pesticides and won’t provided information on the potency of the product.