SAN DIEGO — San Diego City Council approved a tax increase on cannabis businesses from 8% to 10% on Monday, a move aimed at addressing the city’s projected $250 million budget deficit. 

The tax hike, set to take effect on May 1, is expected to generate nearly $4 million in additional revenue for the city’s general fund, assuming sales remain steady.

The decision comes amid declining cannabis tax revenues in San Diego, which dropped by $1.5 million from fiscal year 2023 to 2024. Despite this trend, city officials hope the increased rate will help bolster the city’s finances.

“It’s the price you pay,” said Alex Marquez, a Pacific Beach resident, reflecting on the tax increase. 

While not thrilled about paying more, Marquez believes many customers will continue patronizing their usual dispensaries for convenience.

However, some citizens and industry observers express concerns about potential unintended consequences. Jacob, a San Diego resident, worries that it would possibly “drive up the illicit market.” This sentiment highlights concerns that higher prices could push some consumers towards illegal cannabis sources.

The tax increase will make San Diego’s cannabis business tax the highest in the county. Neighboring cities have lower rates, with Chula Vista, Encinitas, and Vista at 7%, Oceanside and Lemon Grove at 5%, La Mesa at 4%, and unincorporated San Diego County at just 2%.

Some San Diegans speculate that dispensaries might offer deals to offset the tax increase. 

“I figure that most places will have deals that [for example], you spend over $50 and you get free delivery, or you get some kind of discount that could incentivize, kind of bypassing that 2% or pass the savings on,” one resident said.

The tax hike specifically targets dispensaries, leaving the 2% tax rate for cannabis production facilities unchanged, as established by a 2022 ordinance.

San Diego joins other major California cities like Los Angeles and San Jose in implementing a 10% cannabis business tax rate. San Francisco’s rate is considerably lower, at between 2.5 and 5%, depending on overall annual sales.