With legal cannabis sales on the decline and subject to a recently imposed 15% state tax, the city is poised to offer sales tax relief for dispensaries.
Sales have dropped recently to the point of “an industry-wide collapse,” according to a proposal authored by Vice Mayor Ben Bartlett and co-sponsored by Mayor Jesse Arreguín and Councilmembers Kate Harrison and Mark Humbert.
The exemption would take effect retroactively to January 2023 and last until July 2025. Tax payments businesses have made already this year would count as credits against future city taxes or fees. The city administration and Cannabis Commission, meanwhile, will work on a more permanent ordinance for sales taxes on cannabis businesses “with an eye to the ability for the cannabis industry to become a sustainable economic driver,” according to Bartlett’s submission.
Legally, the city will have to adopt an ordinance for the temporary relief itself, which means two readings before the members can vote, Arreguín said Tuesday. Originally an action item for Tuesday’s council meeting, the members agreed to move it to their consent agenda, a bloc of measures they adopt en masse.
The relief on local sales tax does not get the businesses out from under the rest of their tax burden — a 15% excise tax the state began charging in 2023, another 5.25% sales tax to the county and another 5% city business license tax that is going to remain in place even if the city sales tax relief goes through, according to council records.
And that 15% state excise tax is “calculated based on the average market price from the retail sale, which leads to an actual current effective tax rate of 27%,” according to city records.
“We’ve been struggling really, really greatly,” Aundre Speciale, president and founder of Cannabis Buyers Club of Berkeley, said Tuesday.
With cannabis still federally regulated and financial institutions loath to allow credit or debit card payments, dispensaries’ percentages of cash sales are higher than many other businesses, and have become targets of burglars, robbers and thieves in Berkeley and elsewhere looking for cash or cannabis itself to resell.
Speciale said that, like the five-year-old state tax, robberies had hit her business hard.
Taxable cannabis sales have also begun a downward trend in California starting in mid-2021, according to state data. “This relief really means, ensures our existence,” she said, adding she was proud to run her business in Berkeley.
Masao Yabusaki said his family, who for generations have run a nursery on Dwight Way and are seeking to grow cannabis on it, “don’t have access to funding that corporate cannabis may have.” Relief like the city is working on “doesn’t come every day, and I just want to say thanks from the bottom of my heart.”
Council members and business owners also noted that keeping legal cannabis businesses running was crucial to obviate the illegal cannabis market and prevent the violence that comes with it.
While the city will lose sales tax revenues in the short term, “a lower tax rate will make Berkeley cannabis businesses more competitive in the regional market and may result in greater business activity and tax revenues to the City,” according to Bartlett’s submission.
Arreguín said in an email the ordinance was likely to return to the council July 11, which is when the council is next scheduled to meet, and “be fully effective mid-August.”
