San Diego Evaluates Cannabis Business Tax Increase

LOS ANGELES- The San Diego City Council is considering a proposal to raise the tax rate on cannabis businesses from 8% to 10%, aiming to address a projected $258 million budget deficit for the upcoming fiscal year. ​

Since the approval of Measure N by voters in 2016, San Diego has imposed a gross receipts tax on non-medical cannabis businesses, initially set at 5% and increased to 8% in 2019. In 2022, the tax rate for cannabis production facilities was reduced to 2%. ​

City officials estimate that increasing the tax rate to 10% could generate an additional $3.97 million annually. However, there is concern that higher taxes may drive consumers to unlicensed sellers or to neighboring cities with lower tax rates, potentially reducing overall tax revenue.

Tax rates in nearby jurisdictions vary, with Chula Vista, Encinitas, and Vista imposing a 7% tax, Oceanside and Lemon Grove at 5%, and La Mesa at 4%. San Diego County’s unincorporated areas have a cannabis business tax rate of 2%.

Kimberly Simms, an attorney representing cannabis businesses, expressed concerns that higher taxes could make San Diego less competitive, encouraging consumers to purchase from neighboring cities with lower tax rates. ​

The City Council must weigh the potential benefits of increased tax revenue against the risks of reduced competitiveness and possible declines in overall tax income due to consumer shifts to lower-tax areas or the illicit market.​