San Diego City Council Raises Cannabis Tax to 10%, Eyes $4 Million Revenue Boost

The San Diego City Council has approved a tax hike on licensed cannabis businesses, increasing the rate from 8% to 10%. Officials anticipate the move will generate an additional $4 million annually, adding to the $17 million collected last year. While supporters say the extra funds will benefit public services, critics argue it could push consumers toward cheaper, unregulated alternatives.

Officials Say Higher Taxes Will Support City Services

City officials backing the tax increase believe the revenue could be a crucial boost for public infrastructure. Council President Joe LaCava emphasized that the additional funds would help maintain city parks, improve roads, and support essential services. He also downplayed concerns about consumer impact, arguing that a 2% tax increase is unlikely to drive buyers away from legal dispensaries.

“We don’t believe this will significantly affect the average customer’s purchasing habits,” LaCava stated. “But it will help ensure that our city has the resources it needs.”

However, there are still questions about how the funds will be allocated. With a growing list of budget priorities, the city will have to decide whether the cannabis tax revenue will go toward specific projects or be absorbed into the general fund.

Industry Voices Concern Over Market Impact

Opponents of the tax hike warn that higher prices could hurt legal cannabis businesses already dealing with tight margins. Industry representatives argue that cannabis is one of the most heavily taxed sectors, with state, local, and regulatory fees all taking a toll.

One of the main concerns is consumer behavior. If prices climb too high, buyers may turn to the illicit market, where products are significantly cheaper and untaxed. California’s black market for cannabis remains a persistent issue, with many unlicensed sellers operating outside the regulatory system.

“It’s already tough to compete with unlicensed sellers who don’t have to pay these taxes,” said one local dispensary owner. “Raising the rate even further makes it harder for us to stay afloat.”

Tax Rates Vary Across California

Cannabis taxes differ widely across California cities. While San Diego’s new 10% rate is on the higher end, some jurisdictions impose even steeper levies, while others have opted for lower tax structures to keep legal businesses competitive.

City	Local Cannabis Tax Rate
Los Angeles	10%
San Francisco	5%
Oakland	6% – 10%
San Diego	10%
Sacramento	4% – 8%

Some industry advocates argue that lower tax rates help encourage compliance and reduce the appeal of unregulated markets. Cities like San Francisco have taken steps to ease the tax burden, hoping to support legal businesses and undercut illicit sales.

Will Consumers Absorb the Cost?

While city leaders insist that the 2% hike is manageable, consumer reactions remain uncertain. Some customers may not notice the change, especially if dispensaries absorb some of the added costs. However, others might start seeking out cheaper alternatives.

Cannabis industry analysts note that small price increases can still have a psychological effect. When faced with higher prices at legal dispensaries, some consumers may decide it’s worth the risk to purchase from unlicensed sellers, especially if the cost savings are substantial.

At the same time, the price of legal cannabis in California has been fluctuating, with some products becoming more affordable due to market saturation. Whether the tax hike will cause a noticeable shift in purchasing habits remains to be seen.

Looking Ahead

The tax increase will take effect in the coming months, but its full impact may not be clear for a while. If San Diego sees a decline in legal sales or an increase in illicit activity, city officials may need to reconsider the policy.

For now, legal cannabis businesses in San Diego will have to adjust to the new rates and hope that consumers continue to prioritize regulated, tested products over cheaper, unverified alternatives.