Los Angeles voters overwhelmingly approved Measure CB in the city's recent midterm elections, extending the municipality's 10% cannabis business tax to unlicensed dispensaries operating within city limits. The measure passed with 72% support.
The tax change targets the hundreds of illegal cannabis shops that have proliferated across Los Angeles while avoiding the financial obligations of licensed operators. Until now, only state-licensed dispensaries paid the city's cannabis business tax, creating a competitive disadvantage for compliant businesses.
The Enforcement Challenge
Los Angeles has struggled for years with unlicensed cannabis retailers that undercut legal dispensaries on price while operating without regulatory oversight. Licensed operators have long complained that illegal shops face none of the costs associated with compliance—from testing requirements to zoning restrictions to taxes.
The new measure doesn't legalize these businesses. It simply requires them to pay the same 10% tax that licensed dispensaries remit to the city. How Los Angeles will collect taxes from shops operating outside the legal framework remains an open question.
Industry Response
The lopsided vote reflects frustration among both legal cannabis businesses and residents who've watched illegal shops operate openly. Licensed retailers in California face some of the highest tax burdens in the nation, with combined state and local rates often exceeding 30% when accounting for cultivation taxes, excise taxes, and local business taxes.
But taxing illegal operators is one thing. Shutting them down is another. Los Angeles has attempted various enforcement strategies over the years, from cease-and-desist letters to physical raids, yet unlicensed shops continue to reopen.
What's Next
The city will need to develop collection mechanisms for the new tax. That could mean increased enforcement actions against unlicensed shops or new penalties for property owners who lease to illegal operators. Some industry observers expect the measure to serve more as a deterrent than a revenue generator—a signal that the city is tightening the screws on the illicit market.
For licensed dispensaries, the measure represents a step toward leveling the playing field, even if it doesn't solve the fundamental problem of rampant illegal sales. The 72% approval margin suggests Los Angeles voters are ready for stricter action against unlicensed cannabis businesses.
The measure takes effect following certification of the election results.
This article is based on original reporting by ganjapreneur.com.
