Considering the mountain of regulations and heavy compliance costs heaped upon the cannabis industry, it’s little wonder the illegal market continues to thrive in Nevada. 

Even before considering the regulatory structures that limit where and how the industry operates, the tax burden alone makes it a challenge for legitimate operations to compete with the illicit market on price. With a 15 percent wholesale tax paid at the cultivation level, a 10 percent excise tax on retail sales and regular sales taxes to boot, the actual cost to the consumer gets out of hand pretty quickly. 

A bill in the Assembly, however, aims to reshuffle this tax structure as a way to simplify and improve what has become a messy bureaucratic weight on the industry’s shoulders. 

AB307, sponsored by Las Vegas Republican Assms. Danielle Gallant and Lisa Cole, would eliminate the wholesale assessment on cultivators — eliminating one of the least transparent and most complicated tax costs in the supply chain. Such sweeping wholesale taxes are already rare in the broader marijuana market, and for good reason. Imposing them on a product is an inherently convoluted and distortive process. 

Unlike the wholesale taxes in New York or Illinois, Nevada coffers collect revenue from cultivators by determining a “fair market value” for the product and assessing a 15 percent levy on it regardless of what price dispensaries actually pay for it. The end result is an assessment that is untethered to the actual profit, revenue or value of the product being sold — with low-quality products being dramatically overtaxed and high-quality products being largely undertaxed. 

Only Colorado approaches wholesale products in a similarly nonsensical way. The majority of states with legal recreational markets have taken the far more sensible approach of merely taxing the product at the point of sale — which is not only simpler to calculate, but also far more transparent to the businesses and consumers who ultimately pay it. 

Getting rid of such a distortive, opaque and arbitrary tax structure would be a welcome change for an industry that is already overburdened with unique challenges in the federal and local regulatory environments. 

Of course, simply removing the wholesale tax would come with a slew of revenue problems for the state. The Cannabis Compliance Board (CCB) estimates it would lose roughly $67 million in revenue if that 15 percent rate was eliminated. 

It doesn’t take much imagination to believe there’s little appetite in Carson City for giving a massive tax cut to any industry other than Hollywood moviemakers nowadays. However, AB307 isn’t actually a “tax cut,” nor does it propose reducing the amount collected by the state. Instead, it aims to make up for the loss of wholesale revenue by hiking the retail tax on cannabis products from 10 percent to 14.25 percent. 

According to CCB’s testimony on the bill, that increase would generate $65 million more in revenue than the current retail tax — nearly matching the amount currently collected on the wholesale level. Combined with slight adjustments to the way money would be distributed to local governments, the bill would ultimately be revenue neutral for the state. 

Exchanging a complex wholesale tax for a slightly higher retail tax certainly seems more doable in our current legislative environment than reducing the amount of marijuana money available for priorities such as education.

Within the industry, however, there seems to be a mix of opinions. While some are quite enthusiastic about the opportunity to simplify things, others consider the hefty price hike on the retail side a bit harder to swallow. 

And it’s easy to understand the concern in an industry that is currently struggling to compete against a tax-free illegal market. Even with lower wholesale costs, higher retail taxes could present a bit of sticker shock for customers at the cash register — especially when one considers that local sales taxes will ultimately drive the effective retail rate beyond 20 percent in some cases. 

Then again, that sticker shock might not be a horrible thing for the industry. Because a retail tax is far more transparent than one assessed on the “fair market value” of a product in the middle of a supply chain, there could be more public pressure on lawmakers to keep rates relatively low. 

And even at the higher proposed retail rate, Nevada would still be less exploitative than a number of other states that have chosen to treat the industry as a money-printing machine rather than a fragile emerging market. California, for example, places a 15 percent gross receipts tax on all retail sales. Oregon’s retail tax is even higher at 17 percent and Washington has burdened the industry with an unimaginable 37 percent rate on all retail sales. 

By comparison, Nevada’s current 10 percent retail tax seems exceptionally competitive. However, because of the way we currently assess wholesale taxes, that competitive advantage is significantly reduced by the time the product reaches the consumer. Much of the current cost imposed by the government is simply hidden from consumers and assessed without regard to the actual prices of the products being sold — a structure that obfuscates the true weight of the burden being placed on the market. 

Shifting that burden to the retail side of things won’t completely alleviate what is weighing down the industry, but it would make the structure less complex and significantly more transparent for businesses and consumers alike. 

And that alone would go a long way toward helping the industry finally compete effectively against the illicit goods being peddled on the street. 

Michael Schaus is a communications and branding expert based in Las Vegas, Nevada, and founder of Schaus Creative LLC — an agency dedicated to helping organizations, businesses and activists tell their story and motivate change. He has more than a decade of experience in public affairs commentary, having worked as a news director, columnist, political humorist, and most recently as the director of communications for a public policy think tank. Follow him on Twitter @schausmichael or on Substack @creativediscourse.