Last week the city of San Francisco’s supervisors held a unanimous vote to suspend the city’s Cannabis Business Tax. This suspension is currently in effect and will last through December 2022; during that time, the goal is to create a new tax plan to better support dispensaries.
The Cannabis Business Tax was approved by San Francisco voters in 2018 and established a 1 to 5 percent tax on gross receipts for cannabis dispensaries and businesses. Essentially, any marijuana business’s total revenue would be taxed, regardless of expenditures. This tax was supposed to go into effect on January 1, 2022. However, circumstances have made the Board of Supervisors halt the tax to combat illegal cannabis sales and crime on legal dispensaries.
The author of the legislation, Supervisor Rafael Mandelman, said, “Sadly, the illegal market is flourishing by undercutting the prices of legal businesses, which is bad for our economy as illegal businesses pay no taxes while subjecting workers to dangerous conditions and consumers to dangerous products.” This statement is at the crux of suspending the pending tax. Legal cannabis companies may increase prices due to a new tax, further driving the divide between them and illegal operators’ pricing. The suspension of the tax allows for more price competition in the legal market.
Mandelman noted, “Now is not the time to impose a new tax on small businesses that are just getting established and trying to compete with illicit operators.” This quote illustrates the board’s worry that if the Cannabis Business Tax were to be put in place, it might have a devastating effect on legal dispensaries and allow illegal ones to expand. Many states have been struggling with the growth of illicit markets; California’s illicit market is twice the size of its legal one. San Francisco’s suspension of the tax is an effort to curb the illegal market’s growth.
Another reason the supervisors voted to defer the Cannabis Business Tax is due to a rise in crime in dispensaries. “Cannabis businesses, along with many other retailers in San Francisco, are struggling under the weight of out-of-control retail theft,” Mandelson said when addressing crime in his legislation. “San Francisco needs to do more to protect these businesses, their employees, and their customers before we hit them with a new tax.”
On November 16 of this year, the cannabis retailer BASA had thousands of dollars worth of inventory stolen from them by armed robbers. This robbery was the fifth that BASA suffered, highlighting the extreme duress dispensaries are under regarding theft. The tax suspension is meant to help dispensaries recoup losses from thieves taking edibles, flower, cartridges, and more.
There is no doubt that several steps have to be taken to address the ongoing illegal cannabis operations and crime. The suspension of the Cannabis Business Tax is a step to help support dispensaries in San Francisco. The City Controller’s Office, the Treasurer and Tax Collector’s Office, and the Office of Cannabis have a year to create a structure and rate for taxes that support cannabis retailers that will be presented to the Board of Supervisors. Once that new plan is unveiled, the city will have to choose what taxation route they are willing to go to support dispensaries and curb the illicit market and crime. Mandelson hopes that the year of tax breaks will be enough to address taxation issues and foster financial stability for San Francisco cannabis businesses. Come 2022, there is hope cannabis retailers will have begun to recover.