Cannabis businesses in San José, Calif., may no longer be subject to the industry’s highest annual licensing fee in the state.
City Council members are scheduled to vote on an annual fee reduction—from $139,406 to $30,000—during their March 19 meeting. The reduced fee was recommended Feb. 15 by the city’s Public Safey, Finance and Strategic Support Committee.
Notably, five of San José’s 10 council members signed a March 15 memorandum supporting the recommended reduction.
The recommendation also includes a provision to align the city’s cannabis regulations with the state by “identifying and eliminating duplicative and burdensome regulations” in San José’s municipal code. These duplicative regulations include city codes for items such as surveillance cameras, deliveries, disciplinary action and record maintenance.
This comes at a time when San José’s annual cannabis business fee is nearly double the next highest municipal licensing fee in California—$71,308 in Wildomar—according to the city’s Safety Committee. Culver City, at $27,771, has the third-highest annual fee.
On this comparative basis, the current annual fees imposed by San José’s Division of Cannabis Regulation “may be burdensome and excessive,” the five council members wrote in their March 15 memo.
“It is our sentiment that the cannabis industry should be treated like any other business entity within the city,” they wrote. “Last year alone, the legal cannabis industry contributed upwards of $15 million in [local] taxes. Given the uncertain financial outlook for city finances, it is crucial that we streamline operations and support the success of this industry, ensuring the continuation and growth of this vital tax revenue stream that helps to fund crucial services.”
This statement comes after two of San José’s 16 dispensaries recently closed, according to NBC Bay Area. And while the steep licensing fees are, in part, to fund protections against crime for cannabis businesses, licensed dispensary owners claim the city has fallen short on this duty, according to the news outlet.
Also, high fees and taxes often cause cannabis businesses to raise their prices, making it more difficult to compete with the unlicensed and unregulated market.
In addition to California’s 15% state excise tax on cannabis sales, San José levies a 10% local “cannabis business tax” on retail sales, the highest in the state.
While 60% of California’s cities and counties do not allow for any retail cannabis businesses, according to a December 2023 analysis by the state’s Department of Cannabis Control (DCC), regulating cannabis businesses in San José has had a notable financial impact on the city, council members wrote in the March 15 memo.
“Since its implementation, [San José’s cannabis business tax] has generated over $50 million, highlighting the economic benefit of the regulated cannabis industry to the municipal coffers,” they wrote. “This revenue supports various city services and underscores the importance of the cannabis sector as a contributing factor to the local economy.”
The language in the memo reflects a growing recognition that the city needs to significantly evolve its approach to cannabis regulations if San José hopes to sustain its local industry, Hirsh Jain, founder of industry consultancy Ananda Strategy, told Cannabis Business Times.
“This evolution in attitudes is notable because San José, like many other cities in California, has long viewed the cannabis industry as a ‘cash cow’ from which to extract revenue, rather than a true economic partner,” he said. “The realities of the current environment may be forcing a change in that sentiment.”
There are currently 1,240 active dispensary licenses in California, roughly 25 more the state had in July 2023, despite this number not accounting for the microbusinesses with a retail component, according to DCC licensing data tracked by CBT. Specifically, California has 3.2 dispensaries per 100,000 residents, one of the lowest rates in the nation, according to CBT research.
Notably, when a state’s 21-and-older population doesn’t have nearby access to a licensed dispensary in a given municipality or region—aka a retail desert—the unregulated market often thrives.
San José council members took note of this in their memo.
“As we move forward, it is essential that we maintain a balanced approach that supports the growth and regulation of the cannabis industry while ensuring the safety and well-being of our community,” they wrote. “A failure of the San José cannabis industry in succumbing to the illegal market is the worst possible outcome for the city of San José. We look forward to engaging in fruitful discussions and making informed decisions that reflect the evolving landscape of cannabis regulation.”
The city council meeting is scheduled for 1:30 p.m. PT March 19.
