San Luis Obispo County cannabis cultivators will see their tax rate drop back to 6 percent this fall after operators told county supervisors that an automatic increase to 8 percent is putting additional pressure on an already struggling industry.
The San Luis Obispo County Board of Supervisors adopted an ordinance on Aug. 4 reducing the Cannabis Business Tax for businesses operating in unincorporated areas of the county. The change takes effect Oct. 1.
Until then, cannabis businesses must continue paying the 8 percent rate that automatically took effect July 1, meaning transactions in August and September remain subject to the higher rate.
The automatic increase stems from Measure B-18, approved by county voters in 2018. The measure established the tax at 4 percent of gross receipts and set it to automatically increase by 2 percentage points each July beginning in 2020 until reaching a maximum of 10 percent, unless supervisors intervene.
“The voters approved this 4-to-10-percent range and your board has the discretion granted by the voters to adjust that rate within that 4-to-10-percent rate,” Justin Cooley with the county Auditor-Controller-Treasurer-Tax Collector’s Office told supervisors.
Changing that automatic structure permanently would require another vote of the public, Cooley said.
Supervisors have intervened before. After the tax reached 8 percent in fiscal year 2022-23, the board reduced it to 6 percent for 2023-24. In June 2024, supervisors again acted before the July 1 increase, keeping the rate at 6 percent.
This year, the board didn’t act before the new fiscal year began, creating complications for both cannabis operators and the county budget.
Operators must pay the higher tax through September, while the county had already built its 2026-27 budget around the 8 percent rate. Cooley said county staff are instructed not to assume future board action when preparing the budget and estimated that every 1 percentage point change in the cannabis tax represents approximately $100,000 in county revenue.
Fifth District Supervisor Heather Moreno said the timing of it was her primary concern.
“My problem with it this year is that because we didn’t plan for it ahead of time, that money has been budgeted,” Moreno said. “And so now we have to take that money out of the budget and figure out a way to fill that gap.”
Third District Supervisor Dawn Ortiz-Legg said the county should address the tax earlier in the budget process, particularly as local operators compete with cannabis businesses in neighboring jurisdictions with lower tax rates.
Today, Cooley estimates that the county has about 22 business licenses representing roughly 17 or 18 distinct operators.
For local cannabis cultivator Justin Carlson, the industry’s current size and economic challenges are reasons to look beyond another temporary tax reduction.
“Every year we find ourselves back in this room asking for the board to keep the taxes at 6 percent,” Carlson told the board during public comment. “The uncertainty makes it difficult for businesses to plan, invest, hire employees, and make long term decisions.”
Carlson urged supervisors to undertake a broader review of the county’s cannabis ordinance, including its tax structure and annual business license fees, arguing that regulations adopted during the early years of legalization no longer reflect the realities of today’s industry.
Fourth District Supervisor Jimmy Paulding asked the Auditor-Controller’s Office to provide the board with a report tracking cannabis industry trends ahead of upcoming budget hearings.
“Obviously the way that this was structured in the increases each year was based on the philosophy that the industry would thrive and the black market would not, then we would see a healthy regulatory environment in the state of California,” Paulding said. “We have different market conditions.” ∆
This article appears in 40th anniversary edition.
