Ingrid Tsong's cannabis business is on the verge of bankruptcy.

As an independent farmer and co-founder of Beija Flor Farms in Mendocino, Tsong had to pull out money from her 401K to make it through the cannabis harvest season.

What You Need To Know

  • Cannabis leaders in the state are calling for the governor to stop excessive taxation on cannabis

  • Many cannabis companies are on the verge of bankruptcy due to the high taxes on their products

  • While the state has reaped a nearly $4 billion tax windfall from cannabis taxes, the illegal black market thrives with nearly $8 billion in sales a year

  • A spokesperson said the governor supports cannabis tax reform and recognizes the system needs change

"We have been scraping by," said Tsong. "Given market prices, I'm looking at a loss per unit when I pay my cultivation tax. We are on the verge of bankruptcy and maybe, seeing ourselves out of business."

Tsong is not alone in her plight.

Once thought of as a modern gold or green rush with immense potential and profitability when voters approved the adult use of recreational marijuana four years ago, California's legal cannabis industry has been anything but due to strict regulations and heavy taxation.

During a conference call with reporters Friday, cannabis industry officials said it's only getting worse.

This January, California is increasing cannabis cultivation tax by about 4.4%.

"Four years after the start of legal sales, our industry is collapsing, and our global leadership and legacy is at the brink of disappearing forever," a coalition of cannabis leaders wrote to Gov. Gavin Newsom and members of the state legislature. "Unable to thrive in California's broken system, many of us are now facing the imminent loss of our businesses and ability to provide for our families."

A spokesman from the governor's office, Erin Mellon, told the Associated Press that the governor supports cannabis tax reform and recognizes the system needs change.

"It's clear that the current tax construct is presenting unintended but serious challenges," said Mellon in a statement. "Any tax-reform effort in this space will require action from two-thirds of the legislature and the governor is open to working with them on a solution." 

The letter comes five years after most Californians voted for the passage of Prop. 64, which allowed the possession and recreational use of marijuana for adults 21 years of age and over. Two decades earlier, California became the first state to allow medical marijuana use.

By allowing the use of marijuana recreationally, there was a belief that it would be a boon to the state and deal a blow to the war on drugs

Instead, the lack of enforcement on illegal drug dealers and operators has allowed the black market to thrive while the state has reaped all of the rewards, cannabis industry officials said. 

According to the California Department of Tax and Fee Administration, since January 2018, the state has received more than $3.1 billion in revenue, from $1.58 billion in cannabis excise tax, $393 million in cultivation tax, and $1.15 billion in sales tax. Meanwhile, the illicit marijuana black market in the state is generating a whopping $8 billion a year, Politico reported.

Besides competing against the black market, cannabis leaders said operators have to deal with an expensive regulatory process to get licensed, find a city that allows cannabis operations (the state has a dual-licensing structure), and once open, pay high taxes. 

The group calls on the state to eliminate the cultivation tax and place a moratorium on the excise tax and incentivize cities that allow cannabis operators in their town. Nearly 70% of localities in the state do not permit cannabis operations.

“It’s a completely burdensome tax that compounds throughout the legal supply chain," said Lindsay Robinson, the executive director of the California Cannabis Industry Association. "We are asking lawmakers through the legislative process to consider suspending or reducing the excise tax in the foreseeable future so the legal market can grow and thrive." 

Jerred Kiloh, the owner of Higher Path dispensary, said his cannabis retail stores made $11.4 million in retail sales, but his profit was a little over $137,000.

Darren Story, the founder of Strong Agronomy, said he had to lay off 50% of his staff earlier this year because of his company's struggle. 

Most farmers are skating by, he said. 

"I know of only a few companies in California making any money," said Strong. "Consumers say,  'I can buy this from my friend down the street for 50% less than retail. what's my incentive buying for this price?"

For Tsong, the co-founder of Beija Flor Farms, said they want the state to fix the regulatory mess they made.

"We have done everything right," said Tsong. "And it seems unsustainable given the regulatory environment that we are currently in."