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California tax authorities to auction seized cannabis assets over unpaid bills

California tax authorities to auction seized cannabis assets over unpaid bills

If you’re looking for a used TV or some inexpensive extra mason jars, a good spot to check will be an auction in Los Angeles on Friday morning at 10 a.m., when the California Department of Tax and Fee Administration sells off seized assets from 10 L.A.-based cannabis businesses to the highest bidder, in an attempt to recoup $14.4 million in taxes owed.

In yet another troubling sign for the Golden State’s flailing marijuana trade, the state tax authority said Feb. 16 will be the first time it auctions off personal property from cannabis companies, though it did auction off a cannabis property in 2022.

“Seizing and auctioning property from cannabis businesses that evade the law is a tool to recover the taxes owed to the state,” CDTFA Director Nick Maduros said in a press release.

Overdue tax bills
The 10 companies combined owed over $14.4 million, but individually the company tax bills ranged from $57,000 to $6.6 million.

Nine of the 10 businesses whose property will be auctioned were illegal, while the tenth was “a legal dispensary with unpaid taxes,” according to a CDTFA release. It did not identify any of the 10 companies by name.

But the simple fact that one of them was a legal operator, said consultant Avis Bulbulyan, is a signal that there are likely many more such seizure actions – and resulting auctions – on the way through 2024.

“This isn’t going to be the last time you see something like this,” Bulbulyan predicted. “You’ve got a failing industry. The industry is at a point in California, we’ve got all these tax liabilities, and there’s no point in paying or negotiating anything, because the taxes owed are more than the value of the business.”

Bulbulyan, the CEO of SIVA Enterprises, said he knew one dispensary owner who was trying to sell his shop in L.A. last year for $5 million, but found no buyers because the shop also came with a $6 million tax liability to the state of California.

And in December 2022, the CDTFA shared with Green Market Report that the cannabis sector as a whole was at that point over a quarter billion dollars in arrears over just state tax bills. That doesn’t take into account federal taxes that might also be owed by struggling businesses.

All of which means that bills are finally coming due, Bulbulyan said.

Where’s the weed?
But the irony, he also noted, is that the CDTFA isn’t even attempting to auction off arguably the most valuable assets the agency seized from the businesses: the cannabis products themselves.

“It’s a total of $14.4 million in unpaid taxes. If you look at the list of items that are being auctioned off, they’ll be lucky to get $20,000,” Bulbulyan said.

The list of items being auctioned includes sandwich boards, glass bongs, cash counting machines, cameras, televisions, shelving, refrigerators, air purifiers, and even a snow cone machine. But no weed.

In other words, nothing very compelling or expensive, and certainly nothing worth $14.4 million, Bulbulyan said.

“If you watch Storage Wars, they would have a better chance at doing a blind bid for a storage unit, the whole unit, versus saying, ‘Here’s a list of everything going in, what’s your bid?’” he said. “It’s absurd.”

The CDTFA noted in its press release that, as of February, the agency had conducted over 2,200 inspections of cannabis businesses behind in taxes, and “seized nearly $90 million in products and cash.”

“If I was to guess, the cannabis products they seized are probably more than the cash,” Bulbulyan said. “What do you do with the product? Instead of destroying it, you’ve got a licensed supply chain. You could very easily auction off the product that was seized. It’s lab-tested, or maybe send it out for lab testing. That would be a very small expense. That would go more toward the tax liability than auctioning off mason jars.”

The CDTFA, however, said in an email to Green Market Report that most or all of the cannabis products seized were illicit, and thus could not be legally resold because they “fail to meet the strict safety standards required” by state law.

“Cannabis products seized during enforcement operations are held at CDTFA facilities and ultimately destroyed,” an agency spokesperson wrote. “CDTFA would not put illegal, unregistered products into the legal supply chain.”

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