City Budget Reduces Cannabis Tax to Support Local Businesses

By Jon LeSage
KING’S CREW, located at 5630 Pacific Coast Highway in Long Beach and located near 7th Street and Bellflower Blvd., is a licensed cannabis dispenser in the city. Those shopping the retailer’s website or store can get a 10% discount off their first purchase from its broad selection of cannabis products.

A lot has changed in the cannabis business in California since recreational use was approved by voters in 2016 and made legal for sale by Jan. 1, 2018. While medicinal-use cannabis had first been approved several years earlier, it took legalization of recreational use to be added for it to become a visible, significant part of Long Beach’s economy.

The state reports that there were 866 licensed cannabis dispensaries in California as of 2022, with 32 of them being in Long Beach. State law requires that only adults 21 years and older with a government-issued ID can purchase cannabis products.

Cannabis business owners have been asking for support from the city to strengthen their startup dispensaries.

The City of Long Beach’s budget for fiscal year 2024, that was passed by the City Council last month, included a cut in retail cannabis sales tax. It also included a potential rebate program plan, and a directive for the city staff to develop a tax relief plan to help stimulate growth in local cannabis retail establishments. That will come through incentives that promote community benefits, local hiring, livable wages, and fair labor standards, according to the city’s proposed budget document.

The City Council proposes reducing the adult-use retail business tax by one percent and the cultivation business tax by an amount equivalent to 1 percent rate reduction. The city projects this will mean a decrease of $3.06 million in the city’s budget if it were to be adopted. That would be made up with a tax revenue projection decrease of $1.08 million and an expenditure add of $1.98 million for a pilot tax credit program.

The city’s Office of Cannabis Oversight anticipates releasing a memo to the mayor and City Council that outlines the proposed criteria and requirements for the Pilot Tax Credit Program. The memo will be posted on this webpage [https://www.longbeach.gov/citymanager/memos-to-the-mayor-and-council/] upon release, says Valencia Maria Mota, MPA, manager of Cannabis Oversight/assistant to the city manager.

The Pilot Tax Credit Program will support the city’s Cannabis Equity Program, which is aimed at supporting equitable opportunities in the local cannabis industry. That would come through making legal cannabis business ownership and employment opportunities more accessible to individuals impacted by the prior criminalization of cannabis in the city, according to the city’s website. Last year, the city allowed up to eight additional dispensaries to be owned exclusively by equity applicants.

State Criticized for Raising Cannabis Taxes

The City Council had been expressing support for local businesses that are each fairly new to this retail business. California has been raising the rate that cannabis retailers must charge to customers, which has been getting a lot of complaint from business owners. Beginning January 1, 2023, cannabis retailers must collect a 15 percent cannabis excise tax (rate subject to change July 1, 2025) from purchasers of cannabis or cannabis products based on gross receipts from the retail sale of cannabis or cannabis products.

Purchasers of cannabis and cannabis products in Long Beach are required to pay the following taxes when purchasing cannabis or cannabis products: 15% excise tax charged by the State of California, and 10.25% local sales tax for the City of Long Beach. Cannabis retailers are also required to pay a business tax of 6% of all sales at the business under their medical license and 8% of all sales at the business under their adult-use license. The cannabis retailer can choose to pass this tax onto customers and itemize it on the receipt, or pay it themselves without passing it on to the consumer.

As for how cannabis breaks out in sales by category: 76% of local cannabis tax revenues in fiscal year 2022 came from adult-use cannabis sales, 4% came from medical cannabis sales, and the remaining 20% came from taxes related to cultivation, manufacturing, distribution, and lab testing. These trends are expected to continue into the 2023-2024 fiscal years, Mota said.

Dispensers offer a wide range of products for smoking, vaping, and eating cannabis-infused products. CBD is one of the available types of products. It’s considered to be an essential component of medical marijuana derived directly from the hemp plant.

Illegal Marijuana Sales a Growing Problem

Much of the pressure on California and city governments has been coming from the growing rate of illegal marijuana sales across the state – and the violence and instability that goes along with it. The San Bernardino Sheriff’s Department has been struggling to keep it at bay, along with law enforcement agencies in Northern California and other parts of California.

One of the concerns expressed by cannabis business leaders and opponents of rising state and local taxes is that legal cannabis is becoming more expensive, motivating consumers to connect with sellers of illegal, illicit cannabis.

“The city does not have intel on the illicit cannabis market but understands that it could be a contributing factor that affects the success of the licensed operators,” Mota wrote in an email to Beachcomber. “Other factors include the disparate availability of cannabis licensing opportunities across the state, which fosters challenging market conditions and supply chain issues. By default, operators in the illicit cannabis market do not abide by the regulatory requirements, including quality assurance and product testing, which results in cheaper pricing compared to cannabis goods produced and sold by licensed operators.”

In late August, California’s Attorney General Rob Bonta announced a new program to help municipalities deal with illegal commercial cannabis activities. The state’s Department of Justice launched the Cannabis Administrative Prosecutor Program (CAPP). Bonta said that CAPP will provide partner cities and counties with DOJ legal support to address the illegal activity through administrative enforcement and nuisance abatement. Fresno will be the first city to take part in the CAPP.

A Long Beach resident who shops regularly at Catalyst Cannabis on 2nd Street in Belmont Shore, and who chooses to remain anonymous, said he doesn’t have any concerns about rising taxes and prices at the checkout counter. He’d previously been buying illegal marijuana through a dealer who only had one or two products available at any given time. He appreciates the wide selection of product choices, and thinks that market dynamics tend to support competitive pricing for cannabis products at these dispenser stores.

 

Legal Status of Cannabis Sales in Neighboring Cities

 

City                                                          Is all retail prohibited?

 

Signal Hill                                                                 Prohibited

Seal Beach                                                               Prohibited

Rossmoor (unincorporated)                                      Prohibited

Los Alamitos                                                             Prohibited

Cypress                                                                    Prohibited

Hawaiian Gardens                                                    Prohibited

Lakewood                                                                 Prohibited

Bellflower                                                                    Allowed

Paramount                                                                Prohibited   

Compton                                                                   Prohibited  

Rancho Dominguez (unincorporated)                      Prohibited                  

Carson                                                                     Prohibited       

Los Angeles (Wilmington)                                          Allowed

 

Another advantage that Long Beach cannabis retailers seem to have is that it’s one of the few cities in this area that allows for cannabis retail stores. As this table shows, only Wilmington and Bellflower are the only neighboring cities that allow for these legal sales.

The state of California has seen tax revenue from cannabis sales decline over the past two years – since the nation’s largest marijuana market launched recreational sales nearly five years ago. In 2022, legal sales reached $5.3 billion, according to figures released by the California Department of Tax and Fee Administration, down 8.2% from $5.77 billion in 2021. That department’s data also shows that this tax revenue was down $143.5 million the first half of this year compared to the same time frame a year earlier – down 5.2% in sales.

The City of Long Beach works on educating business owners and consumers about the dangers of selling and buying illegal cannabis, and why going to licensed vendors in the city is a very good idea. One of the main reasons consumers should stay away from illegal and illicit cannabis is that these stores and individuals may sell products that are contaminated by mold, fungus, pesticides, human byproducts, chemicals, and other adulterants that may cause injury or illness if consumed.

The city also encourages observers to report any illegal cannabis store that they may see. Send an anonymous tip by calling the Cannabis Complaint Hotline at (562) 570-5250, or you can file a complaint online.

 

Jon LeSage is a resident of Long Beach and a veteran business media reporter and editor. You can reach him at jtlesage1@yahoo.com.

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Comments

Wow 1%, I don't think this will make a huge difference at all, even on the cultivation end paying taxes. We won't know until it kicks in and see prices change. finally, why not just give cannabis a regular sales tax? Just like Starbucks coffee? Do Long Beach citizens believe that by bringing a vote to raise the price of over-the-counter medicine by 18% that people would actually vote for it?
County tax, state tax, city tax. Long Beach will soon tax the air we breathe.

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