UNEXPECTEDLY! The California Marijuana Tax Problem: Why Prices Could Increase 70% in 2018.

California will include a 15% levy on all cannabis sales in the state, including medical pot products, starting in January. Meanwhile, local governments are also adding taxes for sellers and growers that could result in a 70% increase in the price of a small bag of good quality marijuana in parts of the state.

Between state and local taxes, some buyers will see an effective tax as high as 45% on adult-use cannabis in California. Proponents of legalization have long pointed to the collection of state and local taxes on marijuana sales as a big benefit.

The new cannabis industry in the state has a projected value of $7 billion with the potential to collect $1 billion per year in tax revenue. But industry leaders in California claim that the high taxes give illicit vendors the upper hand.

“High tax rates raise prices in legal markets, reinforcing the price advantage of black markets,” the global credit ratings firm Fitch Ratings said in a report. “California’s black markets for cannabis were well established long before its voters legalized cannabis in November 2016 and are expected to dominate post-legalization production.”

Only California could legalize pot and still make black markets more attractive than ever.