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San Rafael cuts cannabis delivery tax to 1% for two years after business pleas
Summary
After public comment from delivery operators citing collapsing sales and state tax pressures, the council voted 5-0 to reduce the local cannabis delivery gross-receipts tax to 1% for Jan. 1, 2025–Dec. 31, 2026 (staff had proposed retaining 2%). Council members said the change balances support for local licensed businesses with voter intent under Measure G.
San Rafael —— The City Council on Feb. 18 voted unanimously to reduce the special local tax on cannabis delivery operators to 1% of gross receipts for a two-year period (Jan. 1, 2025 to Dec. 31, 2026), after hearing several delivery business operators plead for deeper relief.
Background: Measure G (approved by San Rafael voters in 2018) authorized the city to levy a special business tax on licensed cannabis businesses of up to 8% and to set different rates for different operators. The council previously reduced the delivery tax from the measure's initial 4% to 2% for calendar years 2023 and 2024. Greg Minor (Community & Economic Development) summarized staff's recommendation to extend the 2% rate for another two years but noted state-level changes (AB 195 and associated CDTFA adjustments) could raise the state excise tax burden on retailers and impose added pressure on local operators.
Public comment: Several delivery business owners said the regulated industry is struggling—citing higher insurance and compliance costs, competition from unregulated markets, and an expected state excise increase (potentially raising retail excise by mid-year). Operators urged the council to reduce the local tax to 0% or 1% to avoid closures. "If taxes aren't reduced further, some businesses will close," one operator said. Other public speakers urged continued regulation and city support for local operators.
Council deliberation and legal context: Councilmembers balanced the fiscal value of the tax (staff referenced roughly $200,000 in annual tax revenue from delivery operators) and voter expectations under Measure G against the fragility of licensed operators facing state and federal constraints (limited banking, tax code Section 280E impacts). The city attorney advised that the municipal code sets a maximum tax rate but does not establish a minimum, so the council can set a lower rate within the code's maximum limits. Some councilmembers emphasized the symbolic and practical importance of keeping licensed retail in the regulated market.
Outcome: Vice Mayor Bushey moved to adopt staff recommendation as modified to set the delivery tax at 1% for a two-year period; the council approved the motion 5-0. The reduction will remain in effect through Dec. 31, 2026, unless the council acts sooner. Staff noted that if the state increases excise burdens later in 2025, the combined tax burden on retailers could substantially increase regardless of the local rate.
Next steps: Staff will reflect the 1% rate in the city's revenue tracking and continue to pursue state-level advocacy and grant/funding options to support programs (some cannabis revenue currently contributes to public-safety and economic development work, including partial support for the "safe team").
