California Officially Legalized Nov,8,2016

California officially legalized
recreational cannabis on November 8, 2016 through Proposition 64,
and the next day several provisions under the initiative went into effect. Cannabis users in California
over the age of 21 now have new freedoms to possess, use and even cultivate cannabis for their personal use.
In contrast, marijuana businesses will have to wait until January 1, 2018 to receive their state licenses to cultivate,
manufacture, and sell recreational cannabis in California. Prop 64 also applies new state level marijuana taxes to
licensed businesses. A cultivation tax will be assessed on all harvested marijuana that enters the commercial market
and collected from commercial cultivators. In addition, a 15% marijuana excise tax will be assessed on any retail
sales of cannabis and collected by dispensaries. However, for qualified patients or caregivers who provide dispensaries
with a Medical Marijuana Identification Card, Prop 64 exempts them from having to pay additional sales and use tax on
top of the 15% excise tax.

The provisions of Prop 64 for both the cultivation tax and excise tax specifically state that they are “effective
January 1, 2018,” but this language is not included in the subsection regarding the sales and use tax exemption for
medical marijuana patients.Prop 64 state that this was an unintentional error in drafting,
the California Board of Equalization (BOE) has ruled that under the language of Prop 64, medical marijuana patients
are immediately exempt from any sales tax. The Board of equalization even went so far as to send letters to dispensaries across the
state advising them to stop collecting sales and use tax as of November 9th.

What all this means is as of now through the end of 2017, the small percentage of medical marijuana patients in
California who have or obtain a state-issued ID card can take advantage of this unintended tax break. California
reportedly brings in around $50 million in annual tax revenue from sales of medical marijuana and some are worried
that the state could miss out on millions in tax revenue through 2017. However, others claim that the effects will
not be so great as currently only about 6,000 patients in California have the state-issued ID cards necessary to
claim the exemption. The impact of the error may depend on how many California patients actually take the time
(and the $100) it takes to register with the state as well as whether dispensaries will check for ID cards or
simply offer their customers an unlawful discount. Considering most dispensaries do not bother to collect and
pay sales tax at all, it’s hard to tell what effect this could have on California’s tax revenue next year.

Thesupporters of Prop 64 are also looking for a way to correct the problem if the Board Of Equalization
does not change its interpretation. One solution would be for two-thirds of the state legislature to amend the language,
as is required under Prop 64, but this would not occur until the next legislative session begins in January.
Alternatively,We could see a swift end to this unintentional tax break. For now, cannabis consumers
in California can enjoy a marijuana tax holiday, just in time for the holiday season.