Measure CB: What you need to know about the city's proposed tax on unlicensed cannabis businesses

What’s at stake

This ballot measure would impose the city’s gross receipts tax on unlicensed marijuana dispensaries and other cannabis businesses.

Official language

Here's the official title: "Applying Cannabis Business Taxes To Unlicensed Cannabis Businesses"

Here's the text you’ll see on your ballot:

Shall an ordinance be adopted to apply the City's existing cannabis business taxes to unlicensed cannabis businesses at current rates (10% on cannabis sales; 5% on medical cannabis sales; 2% on manufacturing, cultivation or other commercialization; 1% on transportation, testing or research); generating approximately $30-35 million annually for general City services, such as street/sidewalk repairs, 911 emergency response, fire protection, and parks, until ended by voters?

What your vote means

A "yes" vote means: You want the city’s business taxes for licensed cannabis businesses to also apply to unlicensed businesses.
A "no" vote means: You do not want the city’s businesses taxes for licensed cannabis businesses to also apply to unlicensed businesses.

Understanding Measure CB

In 2017, Los Angeles voters authorized the city to license, regulate and tax a limited number of cannabis dispensaries and other cannabis businesses that operate in the city. The city theoretically has the power to shut down unlicensed businesses but does not have the power to tax them. Measure CB is intended to eliminate the unfair tax advantage that black market cannabis businesses have over their licensed counterparts.

How we got here

After a series of discussions and reports over the city’s budget shortfalls, as well as mounting unpaid taxes by licensed cannabis businesses and the unfairness of black market sellers operating tax-free, the Los Angeles City Council in January asked the City Attorney’s Office to draft a ballot measure to extend taxes to unlicensed cannabis businesses. In February, the council voted to add the measure to the June 2 ballot.

The history and context behind the measure

Los Angeles taxes most businesses that operate in the city based on the amount of money those businesses collect. Rates vary, depending on the type of business conducted. These gross receipts taxes were applied to cannabis businesses beginning in 2017, a year after recreational cannabis sales were legalized in California.

Sponsored message

Rates apply to businesses licensed and regulated by the city and are 10% of gross receipts on cannabis sales, 5% on medical cannabis sales, 2% on manufacturing, cultivation or other commercialization and 1% on transportation, testing or research.

Licensed cannabis businesses are also on the hook for remitting the city’s 9.75% sales tax and the state's 19% excise tax. Altogether, cannabis taxes in Los Angeles amount to close to 40%. The city makes grants to some sellers to help support their businesses and pay their bills. Yet licensed cannabis businesses owe millions of dollars in back taxes and fees. Unlicensed businesses are not regulated or taxed, so they undercut legitimate cannabis businesses.

Measure CB — think “Cannabis Businesses” — is part of the city’s response to the problem. It is a general tax, meaning the revenue could be used for a variety of city services, including street repair, fire protection and parks.

How can the city expect black market businesses, which already operate illegally without licenses, to pay their taxes? Some tax supporters cite the so-called Al Capone theory, after the Chicago crime boss of the 1920s and 1930s who notoriously escaped conviction for bootlegging and violent crime. He ultimately was convicted of tax evasion. Likewise, supporters argue Measure CB could help Los Angeles shut down illegitimate competitors to licensed cannabis businesses by going after their nonpayment of taxes.

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What it takes to pass

The measure needs a simple majority to pass — 50% plus one.

What people or who support it say

No arguments in favor of Proposition CB were included in the official Voter Information Pamphlet.

What people who oppose it say

No arguments opposing Proposition CB were included in the Official Ballot Pamphlet.
Justice advocacy organization Social Equity LA has called on cannabis businesses to oppose Proposition CB. The group argues the tax would undermine the city’s equity program “by allowing unlicensed operators to continue operating through tax payment alone, rather than requiring compliance with licensing, labor standards, environmental rules and community benefit obligations.”
Councilmember Monica Rodriguez said the measure is misleading. “You're setting up, unintentionally, a false expectation that you're going to be able to hold these guys accountable,” Rodriguez said.

Potential financial impact

The City Administrative Office estimates that the tax could bring in $30 million to $35 million a year, although enforcement could cost up to $10.5 million.

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