San Leandro’s early projections that the cannabis industry would bring roughly $500,000 in new annual tax revenues have largely failed to materialize. One big reason is the inability of its three permitted cannabis dispensaries to actual open shop.

San Leandro beatLast January, the first of the three dispensaries went into operation near the Kaiser Permanente building. The initial tax revenues from the Blum San Leandro is showing promising results.

Blum San Leandro has contributed $135,923 in gross receipt sales tax during the 10 months it has been open, Deputy City Manager Eric Engelbart told the San Leandro City Council on Nov. 11. During the same period, Blum San Leandro has paid a total of $850,000 in taxes that includes a state excise tax of 15 percent.

But, in San Leandro, extrapolated over an entire year, along with the addition of San Leandro’s two other dispensaries, the city’s cannabis-related tax revenues will likely exceed staff’s long-held assumptions.

It is selfish to impose this six percent tax.-San Leandro Councilmember Victor Aguilar, Jr.

NUG San Leandro, which is adjacent to the Davis Street Family Resource Center on Teagarden Avenue held a soft opening on Nov. 11 and intends to hold a grand opening in December. Earlier this year, the council set a Dec. 31 deadline for NUG and Harborside to open their doors or risk revocation of their cannabis dispensary permits. An official from Harborside said last week they intend to begin operations before the end of the year.

Further buoying projections is the fact that Blum San Leandro was the city’s third choice in a permitting process. Presumably, Harborside, one of the largest dispensaries in the country, and NUG, will outpace Blum’s revenues.

But the dispensary operators contend high taxes on cannabis sales from the state on down to local municipalities is stifling the legal market and strengthening the illegal side. Similar to scenes in other East Bay cities that permit cannabis sales, operators are lobbying San Leandro to lower its local taxes rates. San Leandro’s six percent tax rate is currently middle of the road.

For example, Oakland’s rate on retail sales was 10 percent until this week, and Berkeley charges 5 percent. Dispensaries in unincorporated Alameda County have no additional taxes.

“The industry needs a booster shot,” John Oram, one of the founders of NUG San Leandro said. “That currently is not happening.” He advocated for San Leandro officials to lower its tax on gross receipts to five percent or even lower.

“We need to remember where we set these first tax rates back in 2015, 2016 and 2017, it was a very different world,” Oram said, adding that far more dispensaries have open in the state since Californians voted to legalize cannabis in 2016. “What that has done has set up an extremely constricted market and has set up a thriving of the elicit market.”

San Leandro councilmembers appeared swayed by the argument. Several advocated for keeping the cannabis tax at six percent, some argued it should be lowered. One declared removing the tax altogether.

“It is selfish to impose this six percent tax,” San Leandro Councilmember Victor Aguilar, Jr. said. Eschewing the tax would go far in keeping and attracting cannabis customers in San Leandro, he argued, while keeping the city on a path to long-term fiscal sustainability.

In the past, San Leandro has not been proactive in raising its cannabis tax. Last summer, the city’s tax rate was set to increase to seven percent. But city leaders, instead, offered to keep it at six percent for another year since the full roster of its dispensaries had not yet been operational.