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Proposed “Cannabis Business Tax” Earns Criticism From Both Sides
With November just around the corner, cannabis remains a hot topic of discussion as voters prepare to hit the polls this fall. From legalization to regulation to taxes, states are buzzing about the great marijuana debate.
California is no exception, of course. A lot has happened to state cannabis regulations in San Diego County since California first legalized medicinal marijuana in 1996. This upcoming November marks 6 years since San Diego voters approved the “Measure N” bill in November 2016, permitting the city to tax non-medical cannabis businesses.
When it comes to the evolvement of California cannabis regulations, the jury is still out on whether or not these modifications have been successful. There are various initiatives in the works to expand and safely regulate legal marijuana operations in San Diego County, particularly in unincorporated communities where inequities persist.
According to the San Diego County Board of Supervisors, these ongoing cannabis initiatives are designed to improve and safely regulate the cannabis industry. As voters prepare to make their way to the polls in a couple of months, proponents on both sides of the cannabis debate continue to express criticism towards new initiatives and their potential impact on San Diego communities.
San Diego’s New “Cannabis Business Tax”
Back in June, the San Diego Board of Supervisors joined other cities, such as Sacramento and LA, by including a new cannabis business tax ballot in the upcoming election this November. Supervisors proposed the tax as “a bipartisan solution to advance a safe, regulated, and legal adult cannabis market in San Diego County.”
If passed, the new tax will only affect unincorporated communities in San Diego County, loosening current restrictions to accommodate more cannabis operations and distribute more permits.
New Cannabis Tax “Pros”: What Do Supporters Have to Say?
Supporters of the new “cannabis business tax” believe that its approval will yield positive results in incorporated and unincorporated communities alike.
Some residents are optimistic that the new cannabis tax will give legal marijuana businesses a leg up when it comes to combatting the vast underground marijuana market, and play a role in evening the playing field for those in underrepresented populations and underserved areas.
Safer, Fairer Regulations for Legal Cannabis Trade in San Diego
Supervisor Joel Anderson was in the majority of officials who voted in favor of including the cannabis tax proposal on the November ballot.
Although he admits that he wasn’t on board to legalize recreational marijuana back in 2016, he adds that California voters decided otherwise, giving state and local governments a responsibility to regulate legal cannabis trade safely and fairly.
In addition to supporting the inclusion of the cannabis business tax proposal at the polls, Anderson has proposed 16 enhancement measures intended to protect county residents and businesses.
Reduction of Illicit Underground Cannabis Trade
In addition to regulating safe trade in the legal marijuana sphere, Anderson points out that the city must work to eliminate the extensive underground cannabis market.
Illicit cannabis operations in California drastically outnumber legal marijuana businesses. The underground marijuana market is currently estimated to be three times the size of its legal counterpart. By early 2022, illegal cannabis trade was estimated at $8 billion, even 6 years after the legalization of recreational marijuana.
Anderson and his fellow supporters are hopeful that the new cannabis tax will help expand legal cannabis businesses and permits, especially in unincorporated communities. Proponents are optimistic that approving the new ballot will also offer more opportunities for underrepresented populations, allowing more people of varying socioeconomic levels to reap the benefits of the lucrative cannabis market and (as Anderson put it) “flourish alongside the legal cannabis industry.”
New Cannabis Tax “Cons”: What Do Dissenters Have to Say?
Ironically, people on both sides of the fence seem to share similar opinions when it comes to aiding underserved communities and minorities, as both parties believe that their stance on the matter is the best way to protect unincorporated residents in the county—many of whom already face glaring inequities when it comes to cannabis regulation and trade.
Those who oppose the Board of Supervisors’ proposed cannabis tax express similar concern for San Diego’s underserved communities, pointing out that unlike many other California territories, the city has yet to officially implement a social equity program (SEP). Although the city began working on its own social equity program back in 2019, it hasn’t been aggressively pursued until recently, prompting many dissenters to perceive this new tax proposal as another money-grab.
Some residents have expressed suspicions that county officials are simply trying to generate more tax revenue under the guise of social equity. Considering that California has some of the highest tax rates in the country—climbing as high as 65% in certain regions—it might be challenging to disprove their concern.
California hit its peak in generated cannabis tax revenue in the second quarter of 2021, collecting approximately $350 million. This year, the state wrapped up the second quarter with over $275 million in returns, just shy of the $294 million collected in in first-quarter returns of 2022.
Poor handling of prior tax cuts has left many business owners frustrated and underfunded in recent years, as these measures only go so far to produce results. A 2022 survey conducted by The National Cannabis Industry Association revealed that only 26% of licensed owners in California turn a profit. On a national scale, less than half of licensed American cannabis businesses manage to break even. Unsurprisingly, the rate continues to drop for female-run and BIPOC-owned businesses.
Even after the state of California decided to eliminate the weight-based cannabis tax for growers back in February, the retail rate was left untouched, leaving many San Diego business owners stuck with a 15% tax rate. As a result, many Californians have expressed the opinion that the state’s so-called “tax cuts” have done very little to level the playing field for social inequity, or combat the state’s rampant underground cannabis industry.
What Does This Mean for California Cannabis Operations?
Fortunately, the voters of San Diego County get to decide whether the proposed cannabis business tax is approved this November. Although the tax ballot may feel like a small step for cannabis business owners wishing to exercise their agency, it’s still a very important step in the right direction.
Keeping up with the ever-evolving cannabis regulations in California can be challenging. No matter the size of your cannabis business, it’s essential to protect your livelihood by staying up to date with state laws, zoning, and licensing regulations.
Cannabis laws can be confusing. Don’t risk your business going under. Contact our firm at (858) 360-7080 to book your private consultation.