Cathedral City is slashing its cannabis taxes in order to provide financial relief to local businesses.
Cannabis business owners have pleaded with the city to lower their taxes for some time, arguing that the high costs are crushing them on top of competing in an overly saturated market and against a cheaper black market. The city held several meetings on the topic dating back to September 2021, but the City Council mostly avoided making any major changes to avoid losing out on city revenue.
Until Wednesday, when the council unanimously voted to lower its cannabis retail, cultivation and manufacturing taxes. The vote comes around a month after councilmembers indicated support for lowering these taxes during a study session.
The city’s cannabis retail tax will be cut in half from 10% to 5%, the cultivation tax will be cut from $15 per square foot to $10 per square foot and the manufacturing tax will be cut from between 5, 10 or 40 cents per gram depending on the type of item to 5 cents.
Cathedral City received around $4.6 million in cannabis tax revenue in 2020, around $5 million in 2021 and around $3.6 million in 2022, according to City Manager Charlie McClendon. It could lose around $1,335,000 with the reductions to retail and cultivation taxes, but there are not enough local manufacturers for the reduction to manufacturing tax to have a significant impact.
The new tax rates will go into effect March 1 for businesses that are up to date on their tax payments to the city. Businesses that pay outstanding taxes after Feb. 28 will have the new tax rates apply to them on the first day of the month after they made their payments.
The city will likely see a reduction in inactive cannabis licenses as the council has expressed interest in having a way to remove them. McClendon said the city’s code currently allows it to remove inactive licenses at its discretion, but it’s working on changing that language for better enforcement. City staff also plan on dealing with inactive licenses when they have to be renewed, according to a city staff report.
And more tax cuts could be on the horizon for other Coachella Valley cities.
Palm Desert lowered some of its cannabis taxes last week, and the Desert Hot Springs City Council indicated Tuesday that it would like to evaluate its cannabis taxes on the heels of the recent changes in Cathedral City and Palm Desert.
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