The City of Santa Barbara is considering a 2 percent increase in cannabis retail tax as a way to bring in more revenues as the cannabis industry seems to be tapering off in recent years. The city’s Finance Committee raised concerns about the proposal to raise the local tax rate from 6 percent to 8 percent but voted to send the item forward to the City Council for full deliberation before a final decision is made.
Cannabis revenues have declined after hitting an all-time high of nearly $2 million in 2021. Since then, annual revenues have plateaued around a million dollars a year for the past two fiscal years. With the increase in the local retail rate, city finance staff project an additional $200,000-$400,000 in annual cannabis revenue.
Consumers currently pay a stacked tax of 33 percent when purchasing cannabis products at retail storefronts or through delivery services. This total tax includes a 15 percent state excise tax, a 9.25 sales tax and the 6 percent local retail cannabis tax. The proposal would raise the local rate another 2 percent, potentially forcing consumers to pay more than 35 percent tax at the register.
Councilmember Wendy Santamaria raised concerns about the increase in tax putting more pressure on an industry “already struggling to survive.” Santamaria worried that a tax increase would send people across city lines to purchase cannabis in Goleta — where the rate is already lower than in Santa Barbara.
“I do have concerns about this potentially backfiring,” Santamaria said.
Councilmember Meagan Harmon and Finance Committee Chair Eric Friedman both raised questions about whether the increase would include people purchasing cannabis for medical reasons. Both Harmon and Friedman supported moving the proposal forward for full council deliberation, with the direction that staff look into an option that separated retail and medicinal sales.
The motion moved forward in a 2-1 vote, with Councilmember Santamaria opposed. The item is expected to return to the full council in the near future.
