Report: California Cannabis Industry Facing ‘Extinction Event’

A change in California tax law that took effect this year has stakeholders worried the mounting debt bubble will finally become fatal.

According to a report in SFGATE, the state’s cannabis industry could be on the verge of an “extinction event,” with shops going out of business as they miss tax payments and sink under millions of dollars of debt.

State law recently shifted the burden for paying cannabis excise taxes from distributors to retailers, with the first tax payments due May 1. “Retailers have historically had the most trouble paying their bills, and it appears that many shops lack the cash to pay their state excise taxes,” says SFGATE.

According to the California Department of Tax and Fee Administration, Over 13% of the state’s weed retailers failed to make any tax payment by the May 1 deadline,

Those businesses are now facing a 50% penalty on the taxes they owe, “which could be a death blow to many shops,” says SFGATE.

Ali Jamalian, owner of Sunset Connect in San Francisco, (and a winner of Global Cannabis Time’s Top 100 People of Cannabis in 2023 for Activism) told SFGATE that he’s seen cannabis shops with over $500,000 in unpaid bills, and he expects the new tax structure to cause an “extinction event” for pot shops in the state.

“I’ve been in the weed game, so I’ve seen a lot of cycles. But this will have a real impact. … The extinction event is when the government wants its taxes, and no one can pay it,” Jamalian said.