“Our biggest competition is the unlicensed illegal market, which does not have tax obligations and doesn’t need to have testing costs, so they can sell for a lot cheaper.”
By Dana Gentry, Nevada Current
Nevada’s marijuana growers claim they are being overtaxed, and may soon be forced to close their doors. This is due to a tax formula that uses the state’s calculations of the fair market value of one pound of cannabis rather than the wholesale price. The state would lose millions annually in tax revenue if it did not consider competing proposals to modify the calculation.
As she presented the bill, Assemblywoman Shea Backus stated that “Put simply: growers are selling one pound for $1,000″ and that they pay taxes the same as if it was worth $2,000.”
The Fair Market Value (FMV), of cannabis products, is published by the Department of Taxation twice a year. It’s based on data that could be three months old when it’s published. The state cannot rely on outdated data as cannabis prices have fallen rapidly in recent years.
For a pound cannabis flower, the FMV is $1,944. According to John Ackell, Zenway Corp, a North Las Vegas cultivation facility, the wholesale price is only half that.
“However the Fair Market Value (FMV) price has not fallen a comparable amount. Acklell stated that our effective tax rate has been between 25 percent to 30 percent. On some sales, the tax was as high as 60%. It has been impossible to fulfill all of our other obligations with such high effective tax rates.
Ackell claims Zenway is behind in its taxes, and has a payment program with the state. Ackell claims that cultivators would be able to get a 15% tax rate if the Wholesale Cannabis Tax was based on actual sales and not an amount set by state.
was informed by Safi Boyajian (a former licensee for Flower One), that the cultivation company recently went through bankruptcy proceedings in Canada. He stated to that the company had paid roughly $30 million in wholesale marijuana taxes in Nevada between 2019 and 2019.
“That was 24 percent of our revenue. She stated that if the intention was to charge 15% of wholesale sales, this would have been equivalent to $18 million in taxes, which would have meant we technically overpaid $11 million. “This amount could have saved the company and prevented all of these people, including me, from losing a large sum of money.
Are you looking for a gold mine or a money pit?
The state granted licenses to highly-sought individuals in Nevada was expecting the legal marijuana industry to bring in a steady stream of income. With the exception of the Covid-era boom, the reality has been very difficult for the industry.
Sales in 2021 were more than $1B, but they fell 16 percent last fiscal year, and are now down 19.5 percent for 2023.
Layke Martin, executive Director of the Nevada Cannabis Association (formerly the Nevada Dispensary Association), stated that “our largest competitor is the unlicensed illegal market, which doesn’t have tax obligations doesn’t have to have the cost compliance doesn’t have cost testing, and they can sell for a lot, much cheaper.”
The NCA presented a presentation that highlighted the rising cost of regulation. This includes excessive fines, fees, time and effort costs, and other penalties. Based on state data, the state’s time-and-effort billings for licensees reached $388,300 in 2019, $1.7 Million in 2022 and is projected to reach $2.54M in 2023.
Due to the federal illegality of cannabis, licensees are unable to use standard business strategies like writing off expenses. However, they are responsible for federal income and payroll taxes.
Assembly Bill 43 is designed to ease the burden of cultivators. It imposes a flat 15% tax on wholesale transactions between unaffiliated businesses, while transfers within vertically integrated companies would be subject to the state-issued FMV. This proposal does not give growers any relief for sales to affiliated companies. This measure would require that the state publish FMV data quarterly, rather than only once a year.
This proposal is based upon the Colorado formula and has the support from the NCA.
‘Sticker shock’
“The simplest way forward, as every other state except Colorado has done, is to eliminate the wholesale taxes,” stated Will Adler, a lobbyist for the Sierra Cannabis Coalition. He is trying to reduce the wholesale tax and increase retail sales tax on recreational cannabis from 10 percent up to 15 percent in order to recover some of the revenue lost. Washington has eliminated wholesale taxes and is now charging consumers a 37% retail tax for cannabis products.
The NCA reacted negatively to the proposal.
Brandon Wiegand (president of the NCA, chief operating officer at Thrive Cannabis Marketplace) stated that high taxes are the number one complaint customers have.
Adler claims customers are already paying higher prices that include the wholesale tax.
Some legislators expressed concern about the loss in revenue for the state as a result of both proposals. In 2022, cannabis sales were $147 million in education.
In 2022, the 10 percent retail tax on recreational sales generated $89 Million. The revenue is directly distributed to education funding.
In 2022, $63 million was generated by the wholesale tax of 15% on all sales from cultivation facilities to licensees. To offset the negative effects of legalization, revenue goes to the Cannabis Control Board’s operating budget and local governments across the state.
In 2022, a state sales tax of approximately 8 percent was imposed on cannabis sales. It generated $77 million.
According to the Sierra Cannabis Coalition estimates, taxing arms-length transactions at a flat 15% percent rather than on the state’s FMV would reduce tax revenue by $19million in fiscal year 2023. Then, annual increases of several millions dollars per year would follow.
Proposals to reduce wholesale taxes and increase retail taxes would lead to a loss in the amount of $15 million in FY 2023. Annual increases of several millions of dollars per year will follow.
Officials from the Department of Taxation stated that eliminating wholesale tax would significantly reduce the department’s workload.
The measure was not approved by the committee.
This story first appeared in Nevada Current.
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The post Nevada Lawmakers Revisit Marijuana Tax Rules that Growers Say Threaten to Put Out Of Business appeared originally on Marijuana Moment.
