Long Beach could again look at cutting taxes for its ailing legal cannabis industry, as operators say the sector been hamstrung by a long list of state and local taxes that continue to make it non-competitive with the illicit market.
The City Council is scheduled to vote on an item Tuesday night that would direct city management to look at ways to cut taxes for the industry, specifically the gross receipts tax charged on top of normal tax for adult use (8%) and medical cannabis sales (6%).
Those taxes are additional to statewide taxes charged to cannabis operators and the city’s regular sales tax charged to other retail transactions.
The current tax rate, which was approved by voters, went into effect at a time when the industry was looked at with skepticism by council members, who thought cannabis operations would actually cost the city money through increased costs for police patrols. Instead, cannabis taxes have been a reliable source for the city’s general fund, which is projected to take in about $12 million this year.
However, those taxes, along with levies on other aspects of the cannabis industry like cultivation, manufacturing and distribution, have led to markups on the retail end.
“At the end of the day, every operator must sell it through the legal market, and that’s a dispensary,” said Adam Hijazi, president of the Long Beach Collective Association and owner of the Green Room and The Station.
“And when those products are marked up because of the taxes, the residents pay for it. We can’t sell their products because nobody wants to buy them at prices.”
Hijazi said medicinal sales should have no additional taxes placed on them, likening medical cannabis patients to people picking up other prescriptions at the local pharmacy, which are not taxed in California.
For adult use cannabis sales, which made up the majority of the cannabis taxes collected by the city each year, Hijazi said the LBCA would like to see a rate around 3%.
The reduced tax rate can be made up by increased sales, which he and others in the industry believe will come when they’re able to sell products at a lower price, but also through new business operations that he’d like the city to make legal.
Hijazi said things like on-site consumption lounges and events where people are able to legally consume cannabis could be a boon for industry operators in the city.
“What we’re asking for is not just a reduction in taxes, but a reimagining of what this industry can be in a safe and responsible way,” he said.
Councilmember Joni Ricks-Oddie, one of the three members who are requesting the city to take a look at the tax rates, said that this issue falls in line with Mayor Rex Richardson’s plans to promote and enhance other industries in the city as legacy sources of revenue, like oil production, dry up.
“As we’re going to phase out oil revenue, how are we going to replace that?” Ricks-Oddie said.
Long Beach has said it plans to phase out oil production by 2035, but state laws could accelerate that phase-out and cost the city as much as $20 million annually before the anticipated end of operations in 2035.
Ricks-Oddie wouldn’t commit to a percentage for a new cannabis tax. Instead, she said that’s what she’d like city management to examine and bring back for the council to consider, with the potential budget ramifications if the council does move forward with reductions.
However, Tuesday’s agenda item cites a recent tax reduction program in Santa Ana, which provided up to a 3% tax break for operators that paid their employees above the state minimum wage, offered a majority of their workers full-time hours, hired from low-income neighborhoods in the city and provided opportunities for advancement for its employees.
Santa Ana’s tax reduction provided a 1% cut across the board but granted an additional 2% drop for businesses that met its labor standards.
“My overall goal with this particular item is for the city to foster the idea of a positive feedback loop,” Ricks-Oddie said.
In 2019, Long Beach reduced taxes on distribution, cultivation, manufacturing and lab testing, dropping those rates from 6% to 1%. State officials also lowered taxes on cultivation in 2022 in hopes of helping the industry.
The budget implications of cutting cannabis taxes could be big. The city is already projecting a small deficit of $6 million going into the next fiscal year, which starts in October.
City officials will also have to contend with diminished Measure A revenue over the next few years as a portion of it is diverted to pay for the city’s share of the countywide Measure H tax to fund homelessness initiatives, something the city had not paid into until this year.
It’s unclear how long it will be before a potential tax decrease proposal comes back to the City Council, but Hijazi said that time is not something that the industry has.
“We’re happy that it’s coming, but we can’t wait,” he said. “We want to see it go through as soon as possible.”
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