TITLE
Recommendation to request City Manager to investigate the feasibility of repealing the tax for cannabis cultivation in Long Beach, including fiscal and workforce impacts, and present to the Budget Oversight Committee in 90 days.
DISCUSSION
In 2016, Long Beach voters passed Measure MA, which established tax rates for local medical and adult-use cannabis businesses. Among them included a tax related to the cultivation of cannabis (cultivation tax). Per Municipal Code chapter 3.80.261:
“Marijuana Cultivation” shall mean the seeding, planting, watering, warming, cooling, growing, cultivating, harvesting, drying, curing, grading or trimming of marijuana.
Businesses performing cultivation activities are currently charged $12 for every square foot under cultivation by the City, and another $161 per pound of dried cannabis flower by the state. This tax is the only of its kind; no other industry in Long Beach is taxed based upon the cultivation of its products.
Over-taxation has been a barrier for potential cultivators, as revenue is severely impacted once taxes are taken. Further, dwindling profits impact these businesses’ ability to provide livable wages to employees and expand their workforces. Recognizing these obstacles, the Long Beach City Council reduced cannabis business license tax rates for non-retail cannabis operators (distributors, manufacturers, and lab testing facilities) in 2019. While a General Fund revenue loss between $220,000 and $350,000 was projected, the opposite occurred. FY 20 saw $5.6 million more generated from cannabis fees and taxes than in FY 19, with FY 21 bringing in $1.8 million more than FY 20. Although the initial windfall may be attributed to the COVID-19 pandemic, gains made over the last few years suggest that removing the cultivation tax may help contribute to a fair and sustainable local cannabis industry.
Governor Newsom has signaled his support for cannabis tax reform, but currently, no plan has been proposed to addre...
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