After years of calls to lower cannabis taxes in the city, Long Beach could do just that in next year’s proposed budget, which calls for a 1% reduction for retail sales across the board with some businesses able to achieve a 4% cut if they meet certain employment requirements.
George Pinto, owner of The Mericana dispensary in West Long Beach, says the move is a step in the right direction, and he’s hopeful that it will allow him to reopen his business, which he temporarily closed in May after being open for a little over two years.
“One percent, two percent, anything helps but you need it as soon as possible,” Pinto said.
Pinto, like other retail dispensary owners, has been pushing the city to lower its excise tax rate, which adds an 8% tax for adult use cannabis sales and 6% for medicinal sales. Those taxes are tacked on top of the city’s regular sales tax rate of 10.5% and state taxes.
The combination of taxes has put retailers in a difficult position, Pinto said. They can either raise prices to account for the taxes and risk driving people elsewhere, like the illicit market, or they can try to survive on thin margins in hopes of keeping people walking through their doors.
Some months, Pinto said he was losing $20,000 to $30,000, and he estimated that he lost over a quarter-million before making the difficult decision to close his doors.
The tax revenue, though, has been a lifeline for the city, which is grappling with how it will make up for the loss of oil tax money in the future and was dealt a blow last year when the state Supreme Court opted not to hear its appeal over a water fund transfer, ending its practice of sending millions from the Utilities Department to the general fund each year.
Since most retail outlets fully opened in 2019, cannabis taxes have generated between about $10 million and $13 million annually. Nearly 76% of that came from adult-use sales at dispensaries in the city in 2022, according to city data.
Councilmember Joni Ricks-Oddie, who chairs the council’s Budget Oversight Committee, said Tuesday that reducing the taxes was in line with the city’s approach to growing its tax base by allowing newer industries to thrive.
The proposal the City Council will consider as part of this year’s budget would lower retail taxes by 1% across the board, which could result in a little more than $1 million staying with cannabis operators. The council requested city staff to look at a reduction in April.
For those who qualify for the additional 3% reduction, it could mean another $1.9 million staying with the operators. The city plans to offset the lost revenue with reserves this year, but it’s unclear how it would be paid for in future years.
The city’s proposal stipulates the savings should be passed along to the customers, and Valencia Maria-Mota, the city’s manager of cannabis oversight, said Tuesday that the city will monitor revenue for two years to see if the tax cut translates to higher sales.
The city has yet to define what operators would have to do to qualify for the additional 3% reduction, but local hiring, living wages and fair labor standards could be elements that operators would have to meet in order to qualify.
Some operators believe it could look similar to what the city of Santa Ana adopted last year when it lowered its cannabis tax rates.
There, businesses that pay their employees above minimum wage, offer most of their workers full-time hours, offer advancement opportunities within the industry, and hire at least 40% of their workforce from impoverished communities qualify for the additional tax break.
Santa Ana also approved consumption lounges and cannabis events to be held in the city where people can buy and consume cannabis on-site, something retailers are pushing for in Long Beach as a way to increase sales, which could help offset the city’s lower tax rates.
“We’re excited that Long Beach is looking at tax reductions. We’ll take any relief,” said Elliot Lewis, who operates multiple Catalyst brand dispensaries in the city. “It looks like there will be some good employer discount and we believe those who provide good pay with dignity and respect should be rewarded.”
Lewis said that Catalyst pays about $2 million in taxes to the city annually, and potentially cutting that rate in half would be “super meaningful.” However, Lewis said he still believes the tax should be zero.
“I’ll take half a loaf now, and hopefully in the future when people get more educated, we can get to zero,” Lewis said.
Cities across the state are either looking at lowering cannabis taxes or already have lowered them as the industry continues to struggle.
Total cannabis tax revenue generated at the state level has trended down since the second quarter of 2021, when it peaked at $361 million. Each quarter since then has seen less money paid to the state, with tax revenue dipping to $216 million, the lowest since the start of 2020, according to the California Department of Tax and Fee Administration.
What the real-world implications of Long Beach’s tax cut proposal will mean for struggling retailers in the city is unclear, but Pinto is hopeful it means he’ll be able to reopen and potentially bring back some of the employees he had to let go early this year.
“I’m new to this industry and I don’t have any kind of backing the way that most retailers do,” Pinto said. “It’s difficult because once you start to lose money, it’s hard to stop it.”
The City Council is expected to approve the full city budget, including the proposed tax rates, by mid-September.