San Diego's 10% cannabis business tax comes up short

OG article by Andrew Bowen

December 29, 2025

San Diego's cannabis business tax increase from 8% to 10% failed to meet revenue expectations, generating $19.7 million this fiscal year against a projected $21.3 million, a $1.5 million shortfall. Last year at 8%, it yielded $16.7 million, up from $16.7 million at 5% in 2016. The Independent Budget Analyst attributes the gap to declining taxable receipts from illegal market competition, oversupply lowering wholesale prices, and consumer price sensitivity amid rising living costs. Attorney Kimberly Simms notes illicit options drive consumers away as regulated prices rise. San Diego faces competition from suburbs like Encinitas (7% retail, 4% manufacturing) and La Mesa (4% retail, 2.5% manufacturing), which have lower rates and looser zoning, resulting in more dispensaries per capita. Extending retailer hours did not boost all operations due to high costs. A recent federal rescheduling of cannabis from Schedule I to III may allow deductions for expenses like payroll and rent, potentially easing business burdens, though consumer benefits remain uncertain pending legal challenges.