Cannabis tax increase relief comes after summer increase

Cannabis operators in San Luis Obispo County are breathing a cautious sigh of relief this week after the Board of Supervisors voted to reduce the local cannabis business tax back down to 6 percent.

According to the New Times SLO (Atascadero), the board adopted an ordinance on Aug. 4 to lower the Cannabis Business Tax for businesses operating in the unincorporated areas of the county. While the rollback provides a reprieve for an industry facing intense economic headwinds, the relief comes with a catch: the new rate does not take effect until Oct. 1.

That means local cultivators and retail operators will be forced to pay an elevated 8 percent tax rate on transactions through August and September, despite the board's recent intervention. For local businesses and residents watching the evolving cannabis market on the Central Coast, the latest adjustment highlights the friction between voter-approved tax mandates and the realities of a struggling legal market.

The Mechanics of Measure B-18

The August adjustment is the latest chapter in a complex fiscal puzzle originating from the 2018 election. That year, county voters approved Measure B-18, which established the Cannabis Business Tax at 4 percent of gross receipts.

However, the measure included a built-in escalation clause. The tax was designed to automatically increase by 2 percentage points every July beginning in 2020, ultimately capping at a maximum of 10 percent, unless the Board of Supervisors actively intervened to stop the hike.

Justin Cooley, a representative with the county Auditor-Controller-Treasurer-Tax Collector’s Office, reminded supervisors that while they possess the discretion to adjust the rate within that 4-to-10-percent window, permanently altering the automatic escalation structure would require returning to the ballot box for another public vote.

Because the board failed to act before the new fiscal year began on July 1, the tax automatically reset to 8 percent for the 2026-27 year. Supervisors have previously found themselves in a similar holding pattern. After the tax reached 8 percent in the 2022-23 fiscal year, the board manually reduced it to 6 percent. They successfully acted preemptively in June 2024 to freeze the rate at 6 percent for the following year, but missed the deadline this time around.

Budget Impacts and Industry Realities

Missing that deadline created a ripple effect for both local operators and county financial planners. Cooley noted that county staff are explicitly instructed not to assume future board interventions when drafting budgets. As a result, the county had already built its 2026-27 financial framework around the newly triggered 8 percent rate.

Because every 1 percentage point shift in the cannabis tax equates to roughly $100,000 in county revenue, rolling the tax back to 6 percent leaves a $200,000 hole in the newly adopted budget. Fifth District Supervisor Heather Moreno expressed frustration with the timing, noting that the board now has to scramble to pull budgeted money and find ways to fill the resulting gap.

For those operating in the industry, the fight over percentages is about basic survival. Third District Supervisor Dawn Ortiz-Legg emphasized the need for the county to address the tax structure much earlier in the budget cycle. She pointed out that SLO County operators are actively competing against cannabis businesses in neighboring jurisdictions with significantly lower tax burdens.

Currently, the county hosts approximately 22 active business licenses, representing roughly 17 or 18 distinct operators. Justin Carlson, a local cannabis cultivator, argued that this shrinking pool of operators deserves a long-term solution rather than annual temporary fixes. He told the board that the persistent uncertainty makes it incredibly difficult for businesses to plan, invest, hire employees, and make strategic decisions. Carlson urged supervisors to launch a comprehensive review of the county’s overarching cannabis ordinance, arguing that regulations drafted during the early, optimistic days of legalization no longer align with today’s economic realities.

What Comes Next for the 805 Region

As the 805 region continues to navigate the transition from a fledgling to a mature cannabis market, the clash between anticipated tax revenues and market viability remains a central tension.

Fourth District Supervisor Jimmy Paulding acknowledged that the original philosophy underpinning Measure B-18—assuming the legal industry would naturally thrive and easily crowd out the black market—has not panned out as expected. Paulding has since requested that the Auditor-Controller’s Office provide the board with a comprehensive report tracking industry trends ahead of upcoming budget hearings.

For now, local operators must navigate the higher 8 percent tax bracket through the end of September. When October begins, the 6 percent rate will officially go into effect, offering a brief reprieve. However, unless county supervisors take more permanent action to restructure Measure B-18, Atascadero and broader SLO County cannabis businesses will likely face the exact same fiscal cliff next summer.