In a warehouse north of the 405 Freeway off Cherry Avenue sits a 35,000 square foot warehouse where the chief cultivator of Fresh Baked helps oversee the harvesting of nearly 6,000 pounds of cannabis per year.
The bounty of dried cannabis flowers comes with a steep tax bill for KRD, the name of the lead cultivator, and others in Long Beach, who must pay $12 for every square foot that’s dedicated to growing cannabis.
For KRD, that means hundreds of thousands in annual taxes on top of a $180,000 per month lease payment and a $50,000 per month electricity bill.
“We sell product all over the state and that tax money comes back to the city,” he said in an interview Tuesday. “There’s a fine line with taxes and allowing businesses to survive I think we’re past that fine line.”
Cannabis taxes have generated millions of dollars for the city’s general fund since medical and recreational cannabis businesses were legalized across the state in the past few years.
However, the City Council voted Tuesday to take a closer look at how it taxes cultivators, who say they’re being placed at a disadvantage against growers from other cities and those operating in the black market.
“We need to do our due diligence on this topic for consumers and the business community,” said Councilman Al Austin, who placed the item on Tuesday night’s agenda.
Austin noted that the cultivation tax charged to cannabis producers is the only one of its kind. The city charges $12 per square foot, and the state also charges $161 per pound.
Other cities in the state charge taxes on cultivation, but they’re not consistent between jurisdictions. Los Angeles charges $20 for every $1,000 of gross receipts. Santa Ana’s tax is $10 per square foot.
San Francisco’s cultivation tax was between 1% and 1.5% depending on the volume of sales, but its elected leaders opted to suspend cannabis taxes entirely to help the legal industry compete with the black market.
Long Beach officials’ stance on the industry has evolved over the past decade, with the council now fully supporting cannabis owners after some of the alleged negative effects some members said would follow its re-legalization did not materialize.
Earlier this year, Austin introduced a motion to look at expanding the number of retail storefront licenses allowed in the city past the current cap of 32.
The city has also tried to utilize state funding to help speed up the licensing process for equity owners, those with previous convictions tied to cannabis who live in an underserved area of the city and have lower net-worths.
Tuesday’s vote will send the issue to the council committee level, where council members could help decide how much to cut the tax, if at all, and receive updated projections on what it could mean for the city’s budget.
The $9.2 million the city projected would be generated by cannabis taxes this year was earmarked to help support staffing to administer, enforce and oversee the city’s cannabis operations.
It also helps pay for the quality of life officers who interact with people experiencing homelessness and learning programs at Mark Twain and Michelle Obama libraries.
Proponents of cutting the tax say that it will help existing growers in Long Beach expand and continue to hire more employees. It could also draw in more operators looking to open up cultivation sites in the city.
KRD said that if the city were to meet them in the middle, the tax implications could be huge. If the tax was zero, he estimated he could hire 100 more employees, none of whom make minimum wage, he said. If nothing’s done, he said a lot of cultivators in Long Beach could go out of business by year’s end.
“If you went to Starbucks and said we’re going to triple your taxes, Starbucks would probably say they’re not going to open in your city,” he said of the current tax structure for cannabis. “It just crushes businesses.”
City management is expected to present findings to the city’s Budget Oversight Committee on whether cutting the tax is feasible within the next 90 days.