Should Sacramento’s cannabis tax be cut? Dispensary owners and youth advocates at odds

Cannabis operators in Sacramento want the city to reduce a 4% tax on their gross receipts, but the cut would slash money allocated for youth organizations.

The special tax must be paid monthly by all cannabis businesses in Sacramento, and starting next year, 40% of the tax will go to a new entity, the Sacramento Children’s Fund.

But cannabis business owners say they can’t afford the 4% tax anymore.

They say the illegal black market for the drug, along with too much cannabis being harvested while consumer demand has declined, has meant thin margins and tough times.

However, youth organizations in Sacramento that promote drug prevention have become dependent on the cannabis industry.

Sacramento voters approved a referendum in November 2022 that sends 40% of the approximate $21 million in Sacramento cannabis taxes to the Sacramento Children’s Fund. The city keeps the rest of the money for city services.

The Children’s Fund would then distribute around $9 million to youth organizations for mental health services, efforts to prevent youth homelessness and drug prevention.

The fund is supposed to make its first distribution in the second half of 2024.

However, a tax cut discussed by the City Council’s Law and Legislation Committee on Nov. 28 would reduce the tax paid by cannabis business owners to $7 million, according to the Sacramento City Managers Office.

The proposal by Committee Chairwoman Katie Valenzuela would cut the cannabis tax to 2% for all businesses except for testing labs and distributors, which would no longer pay any tax.

The plan would leave the Children’s Fund with less than $3 million based on current tax payments from cannabis business owners.

Valenzuela said she supports the Children’s Fund and helping youth but said some cannabis businesses are in danger of going out of business.

She said she knows that because she has looked at their financial books.

Valenzuela said allowing cannabis businesses to fail won’t help the fund.

“The collapse of the industry will mean the end of the Children’s fund,” she said.

One committee member in opposition

A second committee member, Eric Guerra, is opposed to the cannabis tax reduction. He called cutting the tax “a race to the bottom.”

He said reducing the tax would not only affect the Children’s Fund but also the city general fund, meaning cuts in city services.

The other committee members, Lisa Kaplan and Rick Jennings, have not taken specific positions on the tax cut.

Valenzuela said she plans to move a resolution on the issue to the full City Council by March.

At the Nov. 28 Law and Legislation Committee meeting, cannabis owners pleaded for a tax reduction.

“What we’re asking is, please, we need help with the taxes,” said Debbie Blurton, an owner of the All About Wellness dispensary in midtown.

Blurton said she understood the tax money would go to many different youth organizations and said that is positive.

“But if we’re not here, there will be no money. And I’m asking to be treated equally as all other businesses in Sacramento,” she said.

After the committee meeting, Blurton said that her business had not made a profit in several years. She said her yearly city cannabis tax payment amounts to $300,000. Blurton said that was on top of a $20,600 yearly city licensing fee and a $96,000 yearly state licensing fee.

Mike Snell, owner of Off the Charts dispensary on the Power Inn Road corridor, told the committee that the cannabis tax was unfair and the city should raise the tax on alcohol sales instead.

“Why should the burden be on cannabis?” he asked.

“Why are we not looking at a more easy, more violent, inaccessible substance like alcohol. It’s sold in every gas station. It’s in every grocery store. It’s in every cooler.”

Youth advocates made their own argument not to cut the tax.

“Hundreds of people across the city are working together to do amazing things for children and youth and to save lives,” said Adwoa Akyianu, a youth advocate with the organization Youth Forward.“Now is not the time to dash our dreams; it’s the time for the city to follow through on our voters’ mandate to make a significant investment in the youth of Sacramento.”

She said meetings have already been going on with various youth organizations on initiatives that could be funded by the Children’s Fund, including creating a guaranteed income program for youth aging out of the foster care system.

“These vulnerable youth often have nowhere to go and no adult support, and some become victims of human trafficking,” Akyianu said.

Sacramento’s Office of Cannabis Management has not taken a position on decreasing the cannabis tax but, in a report, stated that the city’s 4% tax was in line with what other municipalities in California charge cannabis businesses.

The office said there are 287 cannabis businesses in Sacramento.

One thing all four committee members agreed upon at the Nov. 28 meeting was to create a task force made up of cannabis business owners and youth organizations to discuss the issue of the cannabis tax cut.

Committee members insisted they weren’t creating the task force as a way to avoid the issue and study it indefinitely but to foster genuine discussion on the issue of helping the cannabis owners financially while maintaining funding for the Children’s Fund.

Valenzuela said she won’t lose sight of the issue and promised the committee she was serious about her plan to bring the cannabis tax cut issue to a committee vote in March.