Over a dozen Long Beach cannabis businesses will not qualify for the tax relief program until they catch up on thousands in taxes owed.
Nearly a year after Long Beach announced it will lower cannabis tax rates in an attempt to increase revenue, the first outline of what that plan may look like was released Tuesday night, in a two-tiered approach that incentivizes community benefits.
The plans offer up to 4% relief from cannabis taxes, but about half of the cannabis businesses in Long Beach will be unable to apply for the full discount until they catch up on taxes owed to the city.
City staff estimates that half of the 32 retail businesses and roughly 30 cultivation businesses owe a combined $6.6 million in taxes, which have been accumulating over the past three years.
Once approved, the base plan will give all adult-use retail cannabis shops, distributors and medical-use retail a 1% tax relief. Adult-use and medical cultivation taxes will go from $14.96 per square foot to $13.09 per square foot of land used.
The City will also enact a Pilot Tax Credit Program, similar to programs in Santa Ana and Oakland, which encourages businesses to hire locally, sell products from equity businesses and pay higher wages to its workers for an increased tax relief.
The Pilot Tax Credit Program allows a business to receive another 3% tax relief credit by meeting these standards:
- At least 50% of employees reside within Long Beach
- At least two of the following:
- 70% of the workforce are full-time employees
- Part-time employees receive wages that exceed 55% of the state minimum wage at the time of hire.
- Full-time employees receive wages that exceed 125% of the state minimum wage at the time of hire.
- Proof of participation in a High Road Training Partnership
- At least one of the following:
- 15% of inventory reserved for cannabis goods cultivated, manufactured, or delivered by an equity business.
- Provide 50 hours of incubation support per year to an equity business.
City staff projected over $3 million in costs for the tax relief program from the General Fund, with $1.08 million supporting the universal adult-use cannabis tax reduction and $1.98 million supporting the Pilot Tax Credit Program. The funds will be offset on a one-time basis with previously set-aside cannabis-related reserves.
Christian Martinez, a researcher with union UFCW Local 342, told Long Beach City Council that the wage requirements for the Pilot Tax Credit Program are too high for businesses to afford. Under the suggested guidelines, part-time employees would earn $24.80 per hour and full-time employees would earn $36 per hour.
“It’s imperative we avoid incentivizing a two-tier wage scale, because it can lead to less full-time workers being employed,” Martinez said, suggesting instead that businesses pay their workers 115% for full-time and 110% for part-time.
Local cannabis dispensary operator Adam Hijazi asked the council to write a letter to California representatives urging them to pass identical measures across the state “to make this industry sustainable and provide safe, affordable access.”
Mayor Rex Richardson asked City Manager Tom Modica to draft a letter doing so, but it was not officially made part of the motion.
HURDLES FACING CANNABIS BUSINESSES
Business Services Bureau Manager Tara Mortensen said the department has been notifying businesses with delinquent tax-standing of the requirement to pay. Those who owe taxes to the city cannot qualify for the tax relief program.
Despite the $6.6 million in taxes owed across over a dozen businesses, the City has been public about its growing reliance on cannabis revenue taxes through its Grow Long Beach initiative, which lays out the City’s plans to replace millions in oil revenue.
Here are the cannabis tax revenues in Long Beach since the city allowed adult-use cannabis retail sales beginning in 2018:
- Fiscal Year 2018: $1.3 million
- Fiscal Year 2019: $4.7 million
- Fiscal Year 2020: $9.9 million
- Fiscal Year 2021: $12.1 million
- Fiscal Year 2022: $13.1 million
- Fiscal Year 2023: $13.4 million
- Projected Fiscal Year 2024: $10.9 million
The projection for 2024 includes the reduction of the Tax Relief Program.
According to staff reports, 66.85% of the city’s cannabis tax revenues in 2023 came from adult-use cannabis dispensaries, 12.59% came from medical cannabis cultivation, 8.48% came from adult-use cannabis distribution, 4.12% came from adult-use cannabis cultivation and 2.6% came from medical cannabis distribution.
Mortensen said if a business doesn’t catch up on their taxes, enforcement will be taken in the form of suspended or revoked licenses, but did not give a timeline of when that enforcement would begin.
The conversation was reminiscent of the City’s plan for the newly passed Sidewalk Vending Ordinance, where enforcement was discussed as an eventual measure with no concrete timeline of when and how it will take place.
Councilmember Joni Ricks-Oddie suggested that the six-month limit for payment plans is too short, and said businesses should be able to enter a plan “on their own discretion” since every business is facing different issues paying.
“We always talk about rolling out the red carpet and not the red tape, so this is all partial to that,” Ricks-Oddie said.
Councilmember Al Austin asked that City staff reach out to all cannabis businesses registered in Long Beach and see if they’re still in operation or were forced to close. If a business had to close, Austin asked staff to conduct an exit interview on why they were forced to shut down.
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