We have been watching the debate on California cannabis taxes, including the arguments from child welfare advocates that cannabis tax reductions would harm children. In this post, I’ll explain why this perspective is flawed, and propose a better path forward.

The California cannabis tax headache

California is potentially overhauling cannabis taxes, a much-needed reform for an industry long overburdened by high taxes. Inflated prices caused by high taxes have pushed consumers to the unregulated, illicit market and priced small operators out of legal compliance. This issue has been covered on our blog and elsewhere. The problem has gotten so bad that some operators were even planning a tax revolt a la the Boston Tea Party, though I doubt they would have dumped any cannabis in the ocean (it’s pricey!)

Would cutting cannabis taxes hurt children though?

In any case, the consensus among cannabis operators, for very good reason, is that taxes need to be cut. However, opposition has emerged to this commonsense reform from an unexpected coalition: child welfare advocates and organizations. California has allocated a portion of the tax revenue from cannabis to subsidize childcare providers and other organizations that provide services to children in need. The pandemic created a crisis of childcare which made these funds desperately needed and crucial to the operation of many childcare providers.

In the state budget for this fiscal year, California allocated close to $400 million in cannabis tax for childcare and “prevention” services for children from low-income communities. That allocation entails approximately $279 million allocated to the Department of Social Services for childcare and about $81 million for youth “prevention programs” through the Department of Health Care Services. So, it makes sense that advocates for child welfare are concerned about the possibility of a cannabis tax cut.

Legacy and impact of the War on Drugs

I’ve written before on this blog that women and children from low-income communities, black and brown communities especially, were disproportionately impacted by the War on Drugs in ways that we have yet to fully unpack and acknowledge.

However, it’s counterproductive for this tax issue to place child welfare in opposition to the existence of a thriving cannabis industry. I think this opposition is founded on a fundamental misconception about how the War on Drugs impacted women and children. Cannabis users and sellers were not the source of the war on drugs. Rather, the government decided to criminalize the use possession and sale of a common plant. In doing so, it effectively criminalized entire low income black and brown communities.

A result of this criminalization was mass incarceration and the removal of primary breadwinners (black and brown men) from communities that were in desperate need of economic mobility. This left women and children behind to fend for themselves with minimal meaningful assistance from the State. These communities now suffer from cyclical poverty and are subject to the rising trend of gentrification and systematic displacement. This is the legacy of the War on Drugs.

Social equity and the cannabis tax burden

The movement for social equity and community reinvestment seeks to repair this economic harm by returning opportunity and mobility to these communities (before gentrification displaces community members permanently). Social equity is a program intended to provide entrepreneurial opportunities in the cannabis industry to those disproportionately impacted by the war on drugs.

To qualify for most cannabis social equity programs, an applicant must show an arrest for a cannabis crime, low-income background, and/or residency in a disproportionately policed area. Most social equity operators have set up shop in areas that experienced disproportionate policing from the War on Drugs (such as South Central and East Lost Angeles), and they employ members of those communities.

As it stands, small cannabis operators, especially social equity operators, bear the brunt of this overwhelming tax burden. Cultivators, social equity business owners and advocates rallied in Sacramento to demonstrate their support for cutting taxes and relieving some of the financial burden on an industry that is already heavily regulated. Cutting taxes benefits small equity businesses and small farms the most.

Heavy cannabis taxes hurt social equity!

In fact, a thriving and well-regulated legal market would benefit everyone, including and especially low income black and brown communities. If the cannabis tax and regulatory scheme remains overly burdensome, we are sure to see many small businesses close their doors for good, while the illicit and unregulated market thrives. The State will collect even less tax revenue, leaving a cannabis industry comprised solely of large corporate cannabis operators which predominantly serve wealthier communities.

A better way to tax

So, in closing, I ask: why should the current legal users and sellers of cannabis pay a premium to repair the harm caused by the government when it chose to execute its War on Drugs? Especially when cannabis businesses do not cause child poverty, nor do they benefit from child poverty.

The real estate development industry, on the other hand, drives gentrification and causes housing crises that directly and currently harm children in poverty. Policymakers should examine who truly benefited from the Drug War and look there for sources of funding to repair its harms, rather than pitting the interests of small social equity cannabis operators against the interests of the very communities they come from.

Would Cutting California Cannabis Taxes Hurt Children? on Harris Bricken Sliwoski LLP.