In San Francisco, the city’s Cannabis Business Tax has been suspended through the end of 2022 in order to limit extra-legal market sales and give the legal industry a boost.
The history of the cannabis industry in California
The state of California legalized recreational cannabis in 2016, though it took two years until licensed businesses began to operate, and only now is the legal industry really starting to boom. Adult-use legalization came twenty years after California became the first state to legalize medical cannabis in 1996. Considering the state is the size of a small country, it’s no wonder that the legacy-to-legal story is taking this long to unfold.
The legacy market in California is rumored to generate over $8 billion a year—but since legal sales started in 2018, the total tax revenue collected has been only $2.8 billion. This means that the majority of cannabis sales—estimates of 75%—are still in the non-compliant and unregulated market in California.
California cannabis sales tax
The state of California has always had a hefty tax on the booming cannabis industry. From an outsider’s perspective, the sales tax might make sense—of course, regulation means extra costs that should be paid for by the industry operators. But if that cost makes transitioning to the legal market impossible, it’s not serving the state or the people. Cannabis is taxed at $160+ per pound with a 15% excise tax, and this doesn’t include additional taxes across manufacturing, processing, distribution, and more.
Suspending the Cannabis Business Tax
As of Jan 1, 2022, San Francisco was supposed to be implementing a 1-5% citywide tax on gross receipts from cannabis businesses, as voted on in November 2018. This extra tax on cannabis businesses would have meant more closed doors in a legal industry. Fortunately, San Francisco supervisors unanimously voted to suspend the city’s Cannabis Business Tax through December 31, 2022. A small tax break, this suspension would help support cannabis retailers to keep working to serve cannabis consumers in a slowly legitimizing industry.
Do you think the San Francisco tax break on cannabis retailers is doing enough for the cannabis industry?