San Luis Obispo County supervisors voted to reduce the local cannabis tax from 8% to 6% of gross receipts, effective Oct. 1, just one month after an automatic increase took effect.
The Board of Supervisors reversed the tax hike during their September meeting, responding to concerns from local operators about the financial burden. The 8% rate had kicked in automatically in September under a previously approved escalation schedule.
The decision comes as California cannabis businesses continue to struggle with a multi-layered tax structure that includes state excise taxes, cultivation taxes (until recently), and local levies that vary by jurisdiction. San Luis Obispo County's cannabis industry has faced particular challenges, with several operators citing the tax burden as a barrier to competing with unlicensed sellers.
The Tax Structure
The county's cannabis tax applies to gross receipts rather than profits, meaning businesses pay the levy regardless of whether they're profitable. At 8%, operators would have owed $8 for every $100 in sales before accounting for operating costs, state taxes, or other expenses.
California's state-level excise tax stands at 15%, and many municipalities add their own taxes on top. Some jurisdictions charge as much as 10% or more in local levies, creating a combined tax burden that can exceed 30% when accounting for standard sales tax.
The 6% rate puts San Luis Obispo County in the middle range for California jurisdictions with local cannabis taxes. Some counties and cities have eliminated their cannabis taxes entirely in recent years, while others maintain rates above 10%.
Industry Response
Local operators had reportedly lobbied supervisors to reconsider the automatic increase, arguing that the higher rate would make it harder to compete with the illicit market. California's legal cannabis market has shrunk over the past two years, with licensed sales declining from $5.2 billion in 2021 to $4.4 billion in 2023.
The state eliminated its cultivation tax in July 2022 in an effort to ease the burden on struggling businesses. Several jurisdictions have followed suit by reducing or eliminating local taxes, though the moves haven't reversed the market's overall decline.
What's Next
The 6% rate will remain in effect starting Oct. 1, though it's unclear whether supervisors plan to revisit the tax structure in future budget cycles. The county's cannabis program includes both retail and cultivation operations, with tax revenue supporting local enforcement and regulatory costs.
California's cannabis tax system faces ongoing scrutiny from industry advocates who argue that excessive taxation drives consumers to unlicensed sellers. A legislative push to further reduce state taxes stalled in the most recent session, leaving local jurisdictions to make their own decisions about tax policy.
The San Luis Obispo County decision reflects a broader trend of municipalities reconsidering their approach to cannabis taxation as they balance revenue needs against the goal of supporting a viable legal market.
This article is based on original reporting by mjbizdaily.com.
