San Francisco officials suspend tax on cannabis retail businesses until 2023

In an effort to curb illegal marijuana sales and be able to compete with the black market, San Francisco supervisors unanimously voted to approve an ordinance that suspends the city’s Cannabis Business Tax through the end of 2022. The ordinance, which will be in effect until Dec. 31, 2022, was authored by Supervisor Rafael Mandelman, who recognizes the benefits of having a legal cannabis industry. 

The tax in question was approved by the city’s voters in November 2018 and imposed a 1-5% citywide tax on gross revenue generated by cannabis businesses. According to Mandelman, the tax suspension is necessary because the illegal marijuana market is “flourishing by undercutting prices. These illegal distributors avoid paying taxes, which Mandelman explains is bad for the economy. 

Illegal marijuana distributors are also not held to the same product standards that are present in the recreational retail industry. Mandelman explained that illegal drug operations subject workers to “dangerous conditions” while simultaneously subjecting their consumers to “dangerous products.” He concluded that now is not the right time to impose a tax on an industry that’s trying to get established. 

Illegal marijuana markets aren’t the only threat to the legal markets' success however. According to Mandelman, marijuana retailers as well as other retail operations in San Francisco are suffering from a heightened level of theft. On Nov. 16, for example, thousands of dollars worth of merchandise from cannabis retailer BASA on Grove Street were stolen by an armed group. 

Marijuana sales have been dominated by the black market for decades. Due to federal and state prohibitions, the only way to purchase cannabis for many users was illegally. As states begin to legalize, illegal operations are still at an advantage in regards to price. Even when legal retailers match prices, they still have to charge the additional tax placed on cannabis. In order for legal retailers to be competitive, they will likely have to undersell the illegal market.