Governor proposes new Department of Cannabis Control, tweaks to tax collections.

Gov. Gavin Newsom is recommending a major overhaul to how California regulates its multibillion-dollar cannabis industry, with changes aimed at streamlining oversight and tax collection included in the proposed state budget he released Friday morning.

Industry leaders are applauding the proposals, which are expected to ultimately make things easier for licensed businesses to navigate the legal market and compete with illicit operators.

“Today’s announcement from the governor marks a turning of the tide,” said Jerred Kiloh, board president for the Los Angeles-based United Cannabis Business Association trade group.

But there’s also concern about a rocky transition that could pose problems for businesses already struggling to hang on amid burdensome regulations and a thriving illicit market.

“This next year is going to be very critical in seeing how quickly we can course correct and how quickly we can start to see the impacts of these changes,” said Josh Drayton, spokesman for the Sacramento-based California Cannabis Industry Association. “We have to see who survives.”

Newsom’s draft 2020-21 budget calls for collapsing the three state departments that currently oversee the marijuana industry – the Bureau of Cannabis Control for retailers, distributors and testing labs; the Department of Food and Agriculture for cultivators; and the Department of Public Health for product manufacturers – into one new Department of Cannabis Control by July 2021. That will give businesses, which often deal with multiple parts of the supply chain, one point of contact.

It’s not yet clear whether the Bureau of Cannabis Control – which is run by Chief Lori Ajax, a former alcohol regulator assigned by former Gov. Jerry Brown – will step into the lead role in the new department or if it will be rebuilt under new leadership. Newsom’s administration is expected to release details on the consolidation plan this spring.

Newsom’s budget also calls for collecting taxes directly from retailers rather than the current practice of having distributors collect and pay up. It’s a move backed by the nonpartisan Legislative Analyst’s Office in a December report.

Industry advocates were encouraged by a note Newsom included in the budget that says his administration will “consider other changes to the existing cannabis tax structure,” including a potential rate adjustment. Drayton said they hope to push – either in upcoming revisions to Newsom’s budget or through legislation – for the state to eliminate its marijuana cultivation tax and at least temporarily reduce the retail tax.

As it stands, Newsom is budgeting for a 15% increase to marijuana tax revenue, from $479 million this fiscal year to $550 million in the 2020-21 year. That will give the state more money for causes mandated by the 2016 legalization measure, Proposition 64.

Along with $60.3 million for child care, Newsom’s budget calls for spending nearly $200 million in cannabis taxes on programs that support youth substance disorder treatment and school retention. An estimated $66.6 million will be directed to clean up environmental damage from illegal cannabis cultivation. And another $66.6 million will go to public safety-related activities.