SAN DIEGO (CNS) – The San Diego City Council Monday will consider increasing the tax rate on cannabis businesses in the city from 8% to 10% as San Diego faces a looming budget deficit.

In 2016, voters in the city approved Measure N, which imposed a gross receipts tax of 5% on all non-medical cannabis businesses but also stipulated the tax cannot exceed 15%. This initial rate was later raised to the current 8%.

In 2022, an ordinance reduced the tax rate for cannabis production facilities to 2%. Monday’s item would not change the rate for these businesses.

Excluding the cannabis production facilities, 27 cannabis businesses operate in the city. During the last fiscal year, they generated $15.87 million in special cannabis taxes.

If approved, the move would go into effect on May 1 and generate an estimated $3.97 million for the city.

However, city staff admit, increasing the tax rate might reduce overall sales due to legal locations located outside the city and illicit sales. Cannabis retail sales are assessed a 15% state excise tax, 7.75% sales tax, and the current local cannabis tax rate of 8%, resulting in a total markup of 31.75%.

Other large west coast cities such as Los Angeles and San Jose have a 10% cannabis business tax rate. San Francisco is between 2.5%-5%, depending on overall gross receipts. For local cities, Chula Vista, Encinitas and Vista all have rates of 7%, while Oceanside and Lemon Grove are at 5% and La Mesa at 4%. The only real outlier is San Diego County’s unincorporated areas, which have a cannabis business tax rate of 2%.

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