The Long Beach City Council took the first formal step toward lowering taxes on some cannabis businesses in Long Beach Tuesday night as it approved an ordinance to drop tax rates to 1%.
Reductions in taxes assessed to distribution, testing labs, manufacturing and distribution will be dropped from the 6% rate that had been enforced to the 1% rate that cannabis industry representatives had lobbied for over the past few months.
The new ordinance won’t take effect until early February at the soonest after the council reconvenes in 2020 to vote on it a second time and the mayor signs it into law.
The council signaled that it would take up the issue at its Dec. 4 meeting when it heard a report on the jobs impact that could be felt if tax rates were lowered in the city. The report projected that under a high-growth scenario the city could see nearly double the amount of jobs that currently exist in this sector of the cannabis industry.
Cannabis business owners had argued that the the high rate of tax assessed at each step of the production line had led to some businesses from following through with plans to open shop in the city or stunted the growth of existing operations. Some had bluntly stated that they would simply move to other cities that already had lower tax rates.
Cities like Los Angeles, Sacramento and San Francisco all have lower tax rates on cannabis businesses but Tuesday’s vote will bring Long Beach into a more competitive tax bracket with surrounding cities.
The ordinance will amend a voter approved measure that set the city’s tax brackets for cannabis businesses in 2016, setting the cap at 8%.
Tax revenue for the city was estimated to be about $4.4 million with the 52 licensed businesses already operating under the city. The tax drop was projected to result in a $350,000 loss in revenue for the city but that did not account for more businesses coming online which could reduce the lost revenue to about $210,000 according to the city’s report.
Manufacturing, lab testing and distribution currently rank as the lowest contributors to the city’s tax revenue out of all portions of the cannabis industry.