The Santa Barbara City Council voted 5-2 to approve a 2 percent hike on cannabis retail taxes, bringing the current local rate to 8 percent. The new increase covers three permitted retail storefronts, but does not impact the city’s two medicinal dispensaries that will continue to pay the 6 percent local rate.
Councilmembers Wendy Santamaria and Eric Friedman voted against the increase, with both sharing concerns about the potential unintended consequences of adding to a tax that is already above 33 percent at the register. Due to the compounding effect of the local rate, the 9.25 percent for sales tax, and the 15 for state excise taxes, consumers can now expect to pay a rate of about 36 percent of their total purchase.
Councilmember Friedman worried that the increase would put Santa Barbara at one of the highest rates in the state, and could put more pressure on an industry that has already been suffering. In recent years, the city has brought in about $1 million a year from cannabis sales, down from a high of nearly $2 million in 2021. City staff estimate that the increased rate could result in anywhere between $125,000 to $300,000 a year in extra revenue if implemented in 2027.
“I don’t know that destabilizing an industry is the answer here,” Councilmember Santamaria said. “I’m not entirely convinced that this will generate the revenue that we are hoping it will.”
The city will host a webinar to explain the new rate to businesses in April, and the effective date of the tax increase would be at the end of the fiscal year on July 1.
