Buying legal marijuana in California could be pricey enough to keep the black market healthy.
Between customers, retailers and growers, taxes on cannabis may reach as high as 45% in parts of the state, according to a Fitch Ratings report. Those high taxes may keep consumers away from legal marijuana stores once the recreational retail market goes live on January 1.
California marijuana consumers are going to have to pay a combination of state and local taxes that vary by municipality. Growers and sellers have their own taxes, too.
Consumers will pay a sales tax ranging from 22.25% to 24.25%, which includes the state excise tax of 15%, and additional state andlocal sales taxes ranging from 7.25% to 9.25%.
Local businesses will have to pay a tax ranging from 1% to 20% of gross receipts, or $1 to $50 per square foot of marijuana plants, according to the Fitch report.
In addition, farmers will be taxed $9.25 per ounce for flower, and $2.75 per ounce for leaves.
The Fitch report says this combination of state and local taxes for consumers, retailers and growers could keep portions of California's cannabis industry off the grid, where it has flourished for some time.
"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," said the Fitch report.
Among the eight states where recreational marijuana is legal, only Washington has a higher tax rate at about 50%.
Colorado and Nevada both follow with rates of 36%. Oregon has a tax rate of 20% and Alaska has a rate of up to 20%.
Medical marijuana has been legal in California since 1996, but the retail markets for recreational marijuana are just now ramping up and are scheduled to begin on New Year's Day.
"High effective tax rates on California cannabis may complicate the state's efforts to establish legal markets" said analysts Stephen Walsh and Karen Ribble in a Fitch Ratings report on California's marijuana taxes.