Californian cannabis businesses are facing mounting financial and regulatory pressures as its second-largest city spikes taxes and its governor extends a ban on intoxicating hemp products.
Earlier this week, San Diego’s City Council voted overwhelmingly to increase taxes on cannabis retailers from 8% to 10% from May 01.
In a bid to reduce the city’s $258m budget deficit, the move is intended to generate an extra $4m in additional tax revenues.
As California already imposes weighty statewide taxes of 22.75%, this will see San Diego retailers slapped with a 32.75% effective tax rate, meaning almost a third of their income goes to the city or state.
In July, amid a further increase in state taxes, this will rise another 4% to 36.75%.
This will increase pressure on an already struggling cannabis industry, with opponents suggesting it provide further motivation for consumers to turn to the states already dominant illicit market.
Earlier this month, a study commissioned by the Department of Cannabis Control (DCC) showed that the illicit market still accounts for around 60% of total consumption in the state.
Meanwhile, California officials have extended an emergency ban on hemp-derived THC products. The prohibition, which originally took effect in September 2024, was set to expire but will now continue for at least another 90 days, with the possibility of a final extension.
Governor Gavin Newsom initiated the ban last year after lawmakers failed to pass regulations for intoxicating hemp products.
