Long Beach, California is on track to establish an ordinance that will give cannabis retailers a minor tax break and reward the ones in good standing on their payments with a bigger tax break, cutting their local tax in half.

At a Jan. 23 meeting, Long Beach City Council members voted to request an ordinance be drafted to lower rates for businesses that meet hiring and compensation markers and are up to date with their current tax payments.

City leadership has been aware about the significant tax burden impacting cannabis businesses across California. Not only in Long Beach, but California’s entire cannabis supply chain faces a chronic debt problem, and the SF Gate called it an “extinction event” last year. In one move, state law recently shifted the burden of excise taxes from distributors to retailers. Over a dozen cities and counties in the state cut taxes to assist retailers with this dilemma.

The tax break fulfills a goal set on April 20, 2023, when the Long Beach City Council vowed to lower tax rates as part of the 2024 annual budget, the Signal-Tribune reported. “We should be aiming to create a positive feedback loop: reduce the tax burden on local operators, allow them to be competitive and expand their businesses, while rewarding those high road employers and operators who make investments back into our community, all while nurturing a new revenue source for the city,” said Councilmember Joni Ricks-Oddie, who brought the item forward.

As of the last count available in 2023, Long Beach was home to 32 retail cannabis stores and 37 cultivators. During the Prop. 215 era, the city was home to even more medical cannabis dispensaries.

Long Beach Post News reports that Tuesday’s vote advanced a cut at 1 percentage point for retailers with the opportunity to qualify for an additional 3 percentage-point drop if they meet “good standing requirements.” Cannabis cultivators would also get a similar tax break. Their square-footage tax was cut from $14.96 to $13.09, the equivalent of a 1 percentage point cut.

The Tax Burden Imposed on California Cannabis Businesses

A tax break couldn’t come sooner. The city of Long Beach currently imposes a 6% excise tax on medical cannabis transactions and 8% on recreational adult-use cannabis sales, on top of the city’s sales tax of 10.25% and the state’s excise tax of 15%. The state taxes have been imposed since adult-use cannabis use became legal in California in 2016

Long Beach adult-use cannabis sales generated $9 million tax revenue of around $13 million in cannabis tax revenue the city expected to collect in 2023. Several city council members expressed concern over the unpaid taxes, preferring to bring those payments up to date before giving businesses any kind of special tax breaks.

“I do think we should have a heavy hand for those businesses that haven’t been compliant with our taxes,” Councilmember Al Austin said at Tuesday’s meeting. “The city needs that revenue.”

In order to be eligible for the larger tax breaks, retailers would have to be up to date with licensing and tax payments, and they would have to meet several other requirements. They would also have to ensure that at least 40% of their staff are Long Beach residents and that they are paying their employees between 110% and 115% of the state’s minimum wage. Retailers would also have to support equity businesses by keeping their products on shelves or providing mentoring and incubation support for equity operators.

If the changes are fully implemented, the tax cuts are projected to cost the city about $3 million annually.  The 1 percentage point cut for retailers across the board is expected to cost the city just over $1 million, according to data presented to the council.

Many local residents complained in recent months that the equity program to support cannabis stores from low-income, justice-impacted residents has resulted in just one successful equity applicant and asked the city to do better.  Others said there’s a great opportunity in the city. Long Beach Green Room owner Adam Hijazi, for instance, said that Long Beach could cut tax rates in order to support legal cannabis businesses and create a cannabis destination in the city. 

The city hopes to follow in the footsteps of other California cities like Santa Ana, in providing tax relief by prioritizing businesses that are in good standing, and the ones that give their employees more than minimum wage or provide career opportunities. 

Santa Ana took a similar step and implemented a 1% tax cut for most cannabis stores in the city and an additional 2% for “high road” employers. 

The council will still have to vote on the ordinance twice before the changes take effect, something that’s expected to happen in the coming months.

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