Cannabis tax again suspended in San Francisco as illicit dealers, theft vex legal sellers

San Francisco supervisors unanimously approved Tuesday an ordinance to suspend The City’s Cannabis Business Tax through the end of 2022 in an attempt to curb illegal marijuana sales.

San Francisco voters approved a 1 percent to 5 percent citywide tax on gross receipts from cannabis businesses in Nov. 2018, but it has never taken effect. The tax for the 2021 calendar year was suspended in December 2020 until 2022, and the latest suspension pushes back any potential tax revenue for at least another year.

According to Supervisor and legislation author Rafael Mandelman, suspending the tax through Dec. 31, 2022 would help support legal cannabis retailers as they struggle to compete with illegally sold cannabis.

Mandelman said in a statement:

Cannabis businesses create good jobs for San Franciscans and provide safe, regulated products to their customers. … Sadly, the illegal market is flourishing by undercutting the prices of legal businesses, which is bad for our economy as illegal businesses pay no taxes while subjecting workers to dangerous conditions and consumers to dangerous products. Now is not the time to impose a new tax on small businesses that are just getting established and trying to compete with illicit operators.”

Mandelman’s office pointed to a Dec. 19 report from the California Legislative Analyst’s Office that found that increased state cannabis tax rates were directly linked to illegal cannabis sales.

In addition to the illegal sales, increased theft is also creating problems for cannabis retailers.

In a recent incident, on Nov. 16 an armed group stole thousands of dollars’ worth of merchandise from cannabis retailer BASA, located on Grove Street. The burglary was the fifth at the location, according to Mandelman’s office.

Mandelman said:

Cannabis businesses, along with many other retailers in San Francisco, are struggling under the weight of out-of-control retail theft. … San Francisco needs to do more to protect these businesses, their employees, and their customers before we hit them with a new tax.”

Once the legislation goes into effect, Mandelman said his office will next work with the City Controller’s Office, the Treasurer and Tax Collector’s Office, and the Office of Cannabis, among other stakeholders, to analyze data on cannabis business sales in the city. The goal would be to present a set of recommendations on tax rate and structure for cannabis retailers to the Board of Supervisors and implement a new plan for 2023.