Long Beach cannabis shops that hire locally, pay workers above minimum wage and meet a series of other special qualifications could soon get a break on taxes, which would ultimately lower the cost for customers if the City Council approves the plan.
A City Council committee has been crafting the tax reductions in the hopes of easing the burden of an 8% excise tax the city collects on every sale from adult-use cannabis retailers and a slightly reduced 6% paid by medical cannabis businesses.
Under the city’s plan, which the council could vote on early next year, qualifying adult-use retailers could cut the excise tax burden from 8% to 4%, and medical dispensaries could reduce theirs to 2%. Those tax savings would be required to be passed on to customers.
Cutting that tax rate would be helpful to retailers, said Adam Hijazi, owner of the Green Room cannabis shop on Seventh Street. But, he added, the state’s tax burden is still the “600-pound gorilla in the room.” In addition to the city’s excise tax, retail operators like Hijazi pay a 15% excise tax to California in addition to the city’s 10.25% regular sales tax.
To qualify for the city’s proposed tax relief, businesses would have to:
- Have 50% of their staff be Long Beach residents.
- Show proof that they’re participating in the High Road Training Partnership, an industry-led effort to build skills for employees and employers.
- Meet at least two “workforce quality of life” markers:
- Have 70% of employees be full-time.
- Pay part-time employees at least 55% of the state minimum wage at the time of hire.
- Pay full-time employees at least 125% of the state minimum wage at the time of hire.
- Either reserve 15% of shelf space for cannabis goods produced or delivered by an equity business or provide 50 hours of incubation support per year to equity businesses. (Equity businesses are those whose owners have lower net worths and have been hurt by the war on drugs.)
One additional barrier, which could disqualify many businesses, is a proposed requirement that they be up to date on their tax bill.
According to a city memo that outlines the plan, about half of all cultivators and retailers are not current on their tax obligations. Businesses on payment plans to catch up on their delinquent taxes would not be eligible to apply until the balance is paid in full, the city’s memo says.
Hijazi, who is also a member of the Long Beach Collective Association, which advocates for cannabis access, said many business owners are behind because they have had to choose whether to cover payroll or pay their taxes.
The industry, he said, is struggling under the compound state and city tax burden and because of competition from the illegal market, which has been able to undercut legal operators’ prices.
“We’re definitely going to need to be a little more creative and understanding especially when working with our small businesses here, because these businesses have been paying millions into the city’s general fund for years,” Hijazi said.
Long Beach cannabis taxes have contributed over $25 million to the city’s coffers, according to the memo.
Hijazi said that making businesses come completely up to date on their taxes to qualify for tax breaks is not going to make them pay any faster.
“They need relief now,” Hijazi said.
He and other cannabis business operators have long advocated for tax relief. The tax rates have been a topic of negotiation since they were imposed in 2016 when cannabis was re-legalized in the city and across the state.
Finally getting a proposal for some relief is “huge,” Hijazi said, “because everything is big and huge when it comes to progress on tax modernization. Is it going to fix all the issues? No, will it make it that much more helpful? Of course it will.”
The City Council is expected to vote on a proposed change to the city’s cannabis tax structure in early 2024.