We’ve been talking a lot about taxes the past few months. But mostly the back-and-forth on what effective tax policy for the cannabis industry looks like has taken place at the state level. Today, we’re asking a different question: Should cities lower their cannabis taxes?

For adult-use retail in our hometown of Los Angeles the standing city tax rate is at 10%, for medical it’s at 5%, all non-retail taxes are at 2%. These tax rates are some of the highest rates in the entire state. Closer to home, LA’s tax rates dwarf the rates of many neighboring municipalities in southern California. While the rationale up until now has been “Yeah, but it’s LA,” the specter of diminishing returns on these rates must be considered. After all, what’s to stop someone one on the fringe of town from going across city boundaries and picking up cheaper product. Here’s a sample of municipal tax rates in the greater Los Angeles area:

SoCal City Cannabis Tax Rates

If your tax rates are higher than those in the plush Malibu, you might wanna consider an adjustment. In fact, across 13 municipalities in southern California that we looked at, only Maywood, which has a staggered “up to 10%,” and the outright punitive rates of Carson, an astonishing 18% across the board, approached or exceeded Los Angeles’s tax rates.

Beyond the concern of shoppers going elsewhere in the LA region and diminishing returns for the city’s coffers, Los Angeles officials should reconsider the current tax rates from a competitive standpoint. Part of the responsibility of city leaders is to make their town as approachable and friendly to business opportunities as possible. With the data we’re seeing, it’s debatable if L.A. –again, save for “being Los Angeles”– is as competitive as it could be for cannabis retailers and operators in the adult-use market. But for a clearer look at how “competitive” Los Angeles is, we took a look at some other large cities in the Golden State to comparison shop, so to speak. Have a look:

L.A. vs Other Big California Markets

First off, cool it Fresno and San Jose. You two trying to catch up with Carson in the worst sense possible? The rest of the data is a little scattered, but what’s clear to us are a few things:

1. Medical tax rates should be at 0% across every city and town that has legalized in California. Cannabis when utilized for its therapeutic properties is no different than any other treatment option for a patient suffering from the effects of chemo, or chronic pain, or glaucoma. This is an argument that should solely stem from a humane obligation to responsibly providing affordable options for those in need of treatment.
2. No one city is doing taxes perfectly, and that’s understandable. This is still a new industry, “we’re at mile 2 of a marathon,” etc, etc. That being said, San Diego, San Francisco and Sacramento are all doing pretty well with their tax rates. But taxes won’t help on their own, which leads us to point #3…
3. Municipal and state-level tax rates need to be used effectively by governing bodies to crack down on the unregulated market. It’s been two years since Prop. 64 was instituted and the two biggest complaints from operators are still: high taxes and lack of enforcement on unlicensed operators. With the Orange County Register reporting that the state’s netted over a billion dollars in tax revenue since Jan. 1 2018, officials need to recognize that by adopting a tax policy that’s less “penny wise, pound foolish” and realize that by lowering tax rates in the short term, licensed operators will have an earnest opportunity to thrive, while also drastically lowering the appeal of the unlicensed market’s strongest selling point: lower prices.

Have questions about tax rates, compliance or licensing? As always, you can reach out to MMLG.