Long Beach lowered the tax rate for cannabis retail and cultivation businesses in an effort to help business owners who say they are struggling to compete with the illicit market.

The City Council on Tuesday voted unanimously to lower the tax rate overall for retail businesses from 8% to 7%, and reduce the tax on cultivation businesses from $14.96 per square foot to $13.09 per square foot.

These taxes are on top of the city’s regular sales tax of 10.25% and the state’s excise tax of 15%.

“The cannabis industry is overtaxed and over-regulated,” Councilmember Cindy Allen said.

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The city also expanded the eligibility requirements for a tax credit program that would give retail and cultivation businesses an additional 3 percentage points off their tax rate.

City staff recommended that eligibility for that program hinge on a business being current on taxes owed to the city and required financial forms. As of April, cannabis businesses owe Long Beach $8.5 million in delinquent taxes and have not submitted 700 quarterly gross receipts reports.

Kelly Hayes, an attorney who represents cannabis businesses in Long Beach, told the council that it is not reasonable to expect businesses to meet these “good standing” requirements. Because cannabis is still illegal at the federal level, these businesses cannot secure loans or open bank accounts, she said.

“So where does this money come from? It comes from sales that are plummeting as a result of illegal sales that are happening,” she said.

Councilmember Joni Ricks-Oddie on Tuesday proposed allowing businesses up to 12 months to pay their outstanding bills with the city instead of six months, and allowing those who have made regular payments for at least six months to be eligible for the tax credit program.

Among other changes approved Tuesday, businesses would also only have to be current with their city tax bills, not their state bills, to qualify.

Mayor Rex Richardson said it’s a fine balance between collecting revenue the city needs to ensure safety and regulatory compliance, and creating an environment in which businesses can thrive and succeed.

“What’s being proposed is a step toward that balance,” he said. “But I know there is more to be done.”

The tax breaks approved Tuesday will mean a loss of more than $3 million in tax revenue for the city, including just over $1 million from the 1% reduction and more than $2 million from the expanded version of the tax credit program.

That loss will be offset by revenue in the city’s marijuana tax fund and other reserves.

The city expects to collect a total of about $11 million this year in cannabis taxes.

Melissa Evans is the Chief Executive Officer of the Long Beach Post and Long Beach Business Journal. Reach her at [email protected], @melissaevansLBP or 562-512-6354.