Cannabis businesses pay more tax than any other industry. At the federal level, cannabis companies are not entitled to basic tax deductions to which other businesses are accustomed. Multiple statewide cannabis taxes make cannabis production in California far more expensive than in other industries. And, at the local level, many California cities and counties exact their own cannabis-specific taxes in an attempt to cash in on a growing industry.
Statistics from the first year of California's new regulated industry show that overtaxation is taking a toll. The legal market is more than 50% smaller than expected, indicating a huge portion of the market remains underground. When prices in dispensaries are 40% higher than on the street, many consumers have little incentive to buy from legal operators.
Meanwhile, Oakland has the state's most severe local cannabis business tax: 5% of gross receipts for medical cannabis sales and 10% of gross receipts for adult use sales. As with any industry, cannabis businesses are cost conscious, and they have a choice of where to locate their businesses. With multiple cities in the Bay Area offering more reasonable tax rates, some of Oakland's most successful cannabis companies are being forced to relocate their facilities--and the high-quality production jobs that come with them--to neighboring cities. OCEP urges the Oakland City Council to reduce the local tax burden to sensible levels so that Oakland remains a competitive destination for top-quality, professional cannabis companies.
The Promise of Equity
Oakland enacted California's first-of-its-kind cannabis equity assistance program in the Spring of 2017. One of the key elements of the program was the promise of no-interest loans for equity-qualified start-ups. Over 1.5 years later, not a single equity business has yet received a loan.
While the City has issued hundreds of "temporary authorizations" to equity applicants through the initial "1-to-1" permitting phase, authority to operate does little to get a real business off the ground. Without critical, and difficult to obtain, start-up capital, many Oakland equity businesses stand little chance of competing in California's competitive statewide market. In the 18+ months since equity program was enacted, Oakland's struggling equity applicants have watched as thousands of other cannabis operators--most with better access to capital than equity applicants--have sped past them in the race to market.
Let's make Oakland's equity assistance program work on the ground and not just on paper. Oakland equity applicants need the no-interest loans they were promised.
Difficulty in obtaining and maintaining a cannabis permit in Oakland is creating a significant drag on the Oakland cannabis community. Over 18 months after the cannabis ordinance was passed, Oakland has issued a mere handful of annual cannabis permits. Inefficiencies in the permitting process, poor communication between city departments, and delays within the city's Fire and Building Departments have combined to cause a backlog of permit applicants hundreds of businesses deep. Moreover, the Oakland Police Department has failed to investigate major crimes against compliant, tax-paying Oakland cannabis operators.
Many Oakland cannabis businesses remain in a state of bureaucratic limbo--needing a local permit to obtain a state license, but unable to move through Oakland's permitting process in a timely way. Oakland needs to commit more resources to permit inspections, improve police response to industry concerns, and streamline the overall permitting process so that our legitimate cannabis operators can getting permitted and focus on growing their businesses.