California Cannabis: Welcoming Change Away From Local Control

It’s no secret that among the many problems with California’s cannabis industry, local control continues to thwart the success of the Golden State industry. In this, California is not alone – most cannabis is entirely local.

However, after these midterm elections, there seems to be a slight shift in local control of cannabis in California. This is a good thing. Preserving local control is not unusual in cannabis-friendly states; cities and counties are free to regulate or prohibit cannabis businesses within their borders under police powers.

However, when the majority of cities and counties eventually ban cannabis businesses, the illegal market rages and legal access becomes an issue. With the midpoints of 2022 behind us, the shift in local cannabis control in California signals that some major cities and key counties are opening up to cannabis businesses.

LA County

In August, I wrote about the cannabis tax measure in LA County. A copy of the ballot measure can be found here.

LA County plans to allow the following businesses to enter its borders in 2023:

  • 25 retail
  • 25 free
  • 10 crop (indoor or mixed light only)
  • 10 distribution
  • 10 test licenses.

Priority goes to equity seekers. For a county of 9 million people, that’s not a lot of cannabis licenses, and the exact license/permit process has yet to be revealed. For now, we can only really say the general “framework” for this. S

We also now know what LA County’s cannabis business taxes will be (and they’re pretty competitive). Here are the highlights:

  • Detail: 4% of gross receipts
  • Manufacturing: 3% of gross receipts
  • Distribution: 3% of gross receipts
  • Test: 1% of gross receipts
  • Cultivation: $7/pc of canopy (indoor artificial light)
    • $4/pc of canopy (mixed light)
    • $4/pc of awning (outside)
    • $2/pc of covered space (nursery)
  • Any other type of cannabis business: 4% of gross receipts

The measure allows the county “to decrease or increase tax rates up to the following maximum tax rates on cannabis businesses in unincorporated areas of Los Angeles County after July 1, 2026”:

  • Detail: 6% of gross receipts
  • Manufacturing: 4% of gross receipts
  • Distribution: 3% of gross receipts
  • Test: 2% of gross receipts
  • Cultivation: $10/pc of canopy (indoor artificial light)
    • $7/pc of canopy (mixed light)
    • $4/pc of awning (outside)
    • $2/pc of covered space (nursery)
  • Any other type of cannabis business: 4% of gross receipts

The county notes that for maximum increases, culture tax rates will be adjusted annually to reflect inflation in 2027.

San Diego County

County voters passed Measure A, which is the county’s cannabis tax measure. Interestingly, San Diego County has a somewhat bizarre cannabis ordinance in that only medical cannabis collectives, commercial cannabis microenterprises, and commercial cannabis retailers can operate (and no new operating certificates yet). was authorized for issuance after April 14, 2017).

Today, there are just five retailers operating in San Diego County, which is home to 3.3 million people. The adoption of this tax measure may indicate the county is ready to expand its cannabis program. The tax ordinance’s preamble even states that the County Board of Supervisors:

wishes to enact cannabis regulations, including a licensing program, and wishes to provide appropriate licensing and revenue to the county in a manner consistent with state law.

Once cannabis businesses are effectively licensed in the county, they will face the following maximum tax rates on an annual basis (until January 2024):

  • Retail/Delivery/Micro-enterprise: 6% of gross receipts
  • Distribution: 3% of gross receipts;
  • Test: 2% of gross receipts;
  • Cultivation: either 3% of gross receipts or (depending on growing medium and/or license type) $10/square foot, $7/square foot, $4/square foot or $2/square foot;
  • Other related activities and manufacturing: 4%

After January 1, 2024, the above tax rates will be adjusted for inflation based on the CPI. The county is not allowed to exceed the maximum rate of any tax in the ordinance. And, like LA County, the tax applies to licensed and illegal operators.

Huntington Beach and Laguna Woods

Huntington Beach is another California local government that passes a cannabis tax measure before licensing and regulating cannabis businesses. Getting more CO cities to regulate and license cannabis businesses would be huge since only six cities currently license cannabis businesses.

Measure O voted on November 8, and imposes a tax of 6% on gross receipts for traders and 1% on gross receipts for all others if cannabis businesses are allowed. And will cannabis businesses now be allowed in Huntington Beach? Here is the city’s response to it:

No. The approval of Measure O is the first phase of the city’s efforts to develop bylaws allowing a limited number of cannabis businesses to operate in the city. The second phase of this effort will focus on developing land use regulations that will determine where cannabis businesses would be allowed to operate and establish buffer zones against sensitive uses such as schools and parks. The final phase will focus on implementing and establishing the bylaws for screening and licensing cannabis business applicants, as well as developing the City’s internal procedures for processing and monitoring the cannabis licensing program. cannabis.

Voters in Laguna Woods (also in Orange County) also passed a cannabis tax measure, Measure T. Measure T states that retailers will pay a tax of between 4% and 10% of gross receipts or, from January to December 2023, a maximum of $5/sq.ft of floor area up to $35/sq.ft for the same, which can be fixed depending on the type of license (it always depends on the City). All other cannabis businesses would be taxed between 1% and 10% of gross receipts or, from January to December 2023, would pay between $1 and $35/square foot of floor space, depending on the type of license. A complete overview of the measure can be found here.

Laguna Woods, similar to Huntington Beach, will need to pass separate local legislation to allow licensed/licensed cannabis businesses.

What awaits us

Other cities in California have also passed cannabis tax measures, which is a good sign. This means these cities are flirting with regulating and licensing cannabis businesses within their borders. Of course, time will tell if and how these licensing ordinances fall apart, but it’s an overall positive indication that California’s change in local cannabis control is moving in the right direction.

Of course, not every cannabis measure (fiscal or otherwise) won voter approval (all three beach towns in LA County rejected the concept). Still, what lies ahead for California is hopefully bright as the noose of local control loosens a bit.

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