Long Beach’s proposed tax relief plan for local cannabis dispensaries is another step closer to reality, a recent city memo said, and could be put into place starting early next year.
The City Council, in April, asked various departments to develop such a program — arguing that reduced taxes would help legal sellers compete with illicit operators and provide living wages to their employees.
A recent memo from City Manager Tom Modica’s office offered a first look at the proposed plan, which has been under development since the council’s April request.
Long Beach’s cannabis tax was approved by voters as Measure MA in 2016.
The tax schedule was later reduced in 2019, officials said previously, but as the rates currently stand, local cannabis sellers are required to pay 6% of gross receipts for medical cannabis retail sales.
They’re also taxed 8% of gross receipts for adult-use retail sales, 1% of gross receipts for lab testing, distribution and manufacturing businesses, and $13.70 per square foot of canopy under cultivation.
Under the proposed two-tier tax reduction plan, the memo said, cannabis business could be eligible for a combined 4% tax break if they meet certain standards.
The first tier would reduce the Long Beach adult-use retail tax by one percentage point — for a 7% total tax.
The “reduction will be applied to all adult-use retail and cultivation businesses,” the memo said.
But it wouldn’t apply to the cultivation tax rate on medical and adult-use cannabis, the memo said, as that metric is adjusted based on the annual Consumer Price Index average for the region.
The program’s second tier, meanwhile, would establish a pilot tax credit program for cannabis businesses that hire local, provide living wages, adhere to fair labor standards and promote community benefits, the memo said.
Businesses that qualify and are in good standing, the memo said, could get a 3% tax credit.
To be considered in good standing, the memo said, businesses have to maintain tax compliance and general operating requirements on both the local and state levels.
There are several eligibility requirements proposed for the tax credit pilot program, according to the memo, separated into three main categories: Local hiring, workforce quality of lif, and training criteria.
Businesses would be required to hire and maintain a staff that’s 50% workers living in Long Beach, the memo said, to meet the local hire requirement.
They would also have to meet two out of three criteria under workforce quality of life category:
- Hiring and retaining a workforce with 70% full-time employees.
- Paying part-time employees wages that exceed 55% of state minimum wage.
- Paying full-time employees wages that exceed 125% of state minimum wage.
Businesses would also be required to participate in an official High Road Training Partnerships initiative via the California Workforce Development Board.
Those trainings are industry-led, the memo said, and intended to address myriad issues, such as job quality, industry efficiency, environmental sustainability and more, last week’s memo said.
“Business participation in a HRTP initiative will help build industry skills for employees and employers alike,” the memo said, “and in turn, bolster the local cannabis industry out of its infancy.”
And finally, cannabis operators would also have to either reserve 15% of shelf space for goods manufactured or delivered by businesses enrolled in the city’s existing Cannabis Equity Program; or provide 50 hours of incubation support to those businesses per year.
If an adult-use retail and cultivation business qualifies for the total 4% tax relief under both tiers of the program, the memo said, they would still be required to pay a minimum 2% tax.
The tax credits would be applied quarterly, the memo said, after businesses would demonstrate compliance with the various eligibility requirements.
The memo also said that cannabis business who do qualify for the programs will be required to pass the tax relief down to consumers.
That provision, it seems, aims to encourage cannabis users to purchase legally — which was a chief concern of the City Council in April.
Cannabis taxes, according to the city, generate around about $13 million worth of revenue for Long Beach annually.
The illicit cannabis market, though, is still estimated to be three times larger than legal operations in California — posing significant competition to legal operators, whose prices are often much higher because of cannabis and sales taxes.
“It is unclear whether the reduced costs at checkout for consumers will result in increased sales of legal cannabis and cannabis products,” the memo said, “thus, minimizing the consumer base of the illicit cannabis market.”
There are several other challenges facing the legal cannabis market, the memo said. Operators, for example, may lack access to traditional banking services because the drug is still deemed a Schedule 1 illicit substance by the federal government.
“The capital-intensive nature of the industry coupled with supply chain constraints such as caps on licenses (especially retail) and prohibition of all cannabis license types in other cities and counties across the state,” the memo said, “further impedes the ability for businesses to succeed.”
The City Council, meanwhile, still has to give the plan final approval and approve an ordinance to implement it. They’re expected to weigh the item in early 2024, the memo said.
If approved, city staffers plan to monitor the impacts of the tax relief program over the next two years to determine whether it’s feasible long term.
The program, as proposed, is projected to increase Long Beach’s General Fund shortfall by a little more than $3 million, as the city will lose about $1.08 million in tax revenue and spend another $1.9 million to implement the tax credit program, the memo said.
But the proposal was included in the city’s fiscal year 2024 budget, and those costs will be covered with money set aside from cannabis tax revenue and other reserves on a one-time basis.
“The potential structural ongoing impact in the outyears (fiscal year 2025 and beyond),” the Nov. 29 memo said, “will be evaluated and addressed as part of future budget development processes.”
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