California cities that embraced the commercial cannabis industry are now revisiting tax rates in an effort to boost local businesses and to fight the black market. Some California cities are reducing tax rates or forgoing automatic raises including San Leandro, Benicia, Cathedral City, Monterey County, Redding, and Salinas.
These cities are focused on attracting cannabis businesses that can quickly start operating and employ local residents. In December 2019, Salinas stopped a 2020 increase that raised the cultivation tax to $25 per square foot and the retail tax at 10%. The city was concerned that the increase would impact the viability of local businesses, and create a barrier to entry.
Earlier this month, the Mendocino County Board of Supervisors voted to send a letter of support for AB 1948, which suspends California’s cultivation tax and to reduces the state excise tax from 15% to 11% until July 1, 2023.
The county indicated in its letter that the tax relief would help the cannabis industry’s transition into a legal market. The county believes that the high-cost structure due to compliance, taxes and other costs provides the black market with a competitive advantage and that a temporary cut in taxes would help level out the playing field.
The good news for the cannabis industry is that city and state officials are listening. Tax relief appears to be on the horizon at the state and local levels.