Board approves limited on-site cannabis consumption at existing retailers, sets 1% tax on lounge sales

The Santa Cruz County Board of Supervisors narrowly approved a framework to allow on-site cannabis consumption at existing licensed retail locations and set a reduced county cannabis business tax rate for lounge sales. The board voted 3–2 to pursue the conservative "option 1" model — permitting consumption lounges only at existing dispensary sites or immediately adjacent commercial spaces — and to define ancillary non-cannabis items separately so they can be exempt from the cannabis business tax. The board also set a 1% county tax rate for cannabis sales that occur at lounges.

The item followed months of outreach and four public listening sessions. Cannabis Licensing Manager Samuel Laforte and Deputy County Administrative Officer Melody Serino presented three location options and two tax-policy options. Option 1 — the approach the board approved — allows retailers to add a licensed consumption area inside their existing footprint or in an adjoining commercial space. Proponents said that model protects worker safety and limits the number of new consumption points while giving existing regulated businesses an opportunity to compete with the black market. Opponents warned about normalizing use, potential public-health risks to youth, and secondhand smoke.

County health officials urged caution. Public Health Division Director Emily Chung and County Health Officer Dr. Lisa Hernandez presented research and evidence that greater retail density and advertising correlate with higher adolescent cannabis use and advised the board to adopt protective conditions, including limits on hours, serving sizes for edibles and beverages, ventilation requirements and limits on proximity to schools.

The board's motion directs staff to draft implementing ordinance language reflecting Option 1, allows the county to define "ancillary products" (non-cannabis merchandise) as exempt from the cannabis business tax, and sets a 1% tax on cannabis products sold specifically for on-site consumption. The motion also asks the Health Services Agency to provide guidance on licensing conditions and on strategies to reduce underage cannabis consumption that will be considered in the ordinance development.

Supervisors described the action as a cautious pilot approach. Supporters said licensed lounges create opportunities for education, worker training and safer consumption in controlled, ventilated spaces; critics said even tightly regulated lounges will increase visibility of cannabis and urged a pause to seek more health data. The board did not adopt a fixed pilot sunset in the final motion but asked for continued health-agency input as ordinance language is drafted. The ordinance, along with proposed tax-code changes, will return to the board for formal adoption following public hearings and staff drafting.