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Chronic financial woes for cannabis dispensaries have led Berkeley to consider a tax holiday – Chico Enterprise-Record

Molotov Cocktail, Bob Hope or Horchata? Sophia Seymens took her time inspecting the stems, leaves and nodes on the cannabis clones, deciding which strains to plant at home.

Growing plants is the most cost-effective option for her marijuana use these days, Seymens said. While she doesn’t shop at dispensaries often, she still browses Berkeley Patients Group’s shelves for the sense of community and the knowledgeable staff.

“Even though it’s legalized, there’s still not a lot of space for people to actually learn about the plant and how to use it properly,” Seymens said. “I feel like that’s why places like this are so important; they offer an opportunity for people who might not necessarily buy weed on the street to feel comfortable and find somebody here who can help.”

But the modest shop at 2366 San Pablo Ave. that’s operated since 1999 — making it the nation’s oldest continuously operating cannabis dispensary — is struggling to keep its doors open.

It has a lot of company — California’s $5.3 billion legal pot industry is barely staying afloat. Continued federal restrictions, booming illicit markets, crumbling wholesale prices of pot per pound and crippling tax burdens have decimated any potential to make a legal profit.

Around the state, cannabis sales dipped in 2022 for the first time since it was legalized for recreational use in California in 2018. In November, cannabis experts predicted a “mass extinction event” of failed dispensaries and other licensed businesses within 12 months — anticipating that the industry’s bubble of debt will soon explode.

Even established national brands are taking a hit. Founded in 2010, MedMen — a retail chain once dubbed the “Apple Store of weed,” which operates locally in San Jose, San Francisco and Emeryville — is facing financial collapse with more than $137 million in debt and stock valued at less than a nickel.

Cannabis dispensary employee Sue Gardea grabs a product for a customer at the Berkeley Patients Group in Berkeley, Calif., on Tuesday, May 24, 2023. (Ray Chavez/Bay Area News Group)
Cannabis dispensary employee Sue Gardea grabs a product for a customer at the Berkeley Patients Group in Berkeley, Calif., on Tuesday, May 24, 2023. (Photo: Ray Chavez/Bay Area News Group)

In Berkeley, whenever someone purchases cannabis plants, flowers, edibles, vapes or pre-rolls, retailers of adult-use and “recreational” products are on the hook for a 15% state excise tax, a 5% city business license tax and a combined sales tax of 10.25% to the city and Alameda County.

Tim Schick, Berkeley Patients Group’s CEO, said he has no choice but to keep paying these fees, especially after California made proprietors personally liable for nonpayment. Schick said the amount of debt that Berkeley Patients Group has been forced to rack up in recent years would supersede any value the dispensary has, even if the owners sold the business tomorrow. The company is now at risk of shuttering if nothing changes.

“When localities legalized cannabis, that basically took any profits that we could have enjoyed, and we kind of went backwards,” Schick said. “​​We’re begging, borrowing and saving everywhere we can to pay the tax man — we’re just upside down right now.”

That’s why Berkeley is now trying to help soothe the burn of chronically high taxes, at least within its borders. By February, city documents reported that the local tax had already produced $1.6 million in the 2023 fiscal year budget. But Vice Mayor Ben Bartlett has proposed retroactively pausing all tax collection for cannabis retailers between January 2023 and July 2025.

“Berkeley wants to see its legal cannabis businesses thrive so they can continue providing high-wage jobs and access to safe, tested cannabis,” Bartlett wrote in his proposal.

On Tuesday, the Berkeley City Council passed the proposal; the item is scheduled to return for a final vote June 27, after the city’s lawyers craft the final ordinance for approval.

Other Bay Area cities and counties have kept their tax rates lower — Emeryville taxes 3% for retail, 2% for manufacturing and 1% for distribution of cannabis, while Hayward currently charges a 6% rate, even though voters approved a cap of 15%. Sellers in the city of Alameda and San Francisco currently only pay regular business taxes, as elected officials have continually delayed implementing any cannabis-specific charges to try and help the flailing industry.

Reduced taxes would also help counteract the marijuana’s black market, which boasts between double and quadruple the inventory, and operates at a fraction of the cost of licensed cannabis businesses. Within just the first months of 2023, two unlicensed operations within Berkeley were shut down — including a bombshell bust of 12,000 pounds of cannabis worth more than $19 million.

Schick said he doesn’t blame consumers for seeking out cheaper options; if a legal retailer has to sell an eighth of an ounce of dried cannabis for $50 just to cover their costs, he said, it can’t compete with someone offering the same amount for $30 out of their garage.

Schick said he and his business partner have each contributed hundreds of thousands of dollars from their personal savings and opted out of collecting salaries in order to ease the financial strain. For now, he said his only realistic avenue for relief rests on city leaders’ shoulders.

“I don’t think there was anything nefarious with respect to the city of Berkeley and what they were trying to accomplish” with current tax rates, Schick said. “But we can’t run a business like this. It’s economics 101.”

Cannabis dispensary employee Sue Gardea shows a tray with baby marijuana plants for customer Sophia Seymens, of Berkeley at the Berkeley Patients Group in Berkeley, Calif., on Tuesday, May 24, 2023
Cannabis dispensary employee Sue Gardea shows a tray with baby marijuana plants for customer Sophia Seymens, of Berkeley at the Berkeley Patients Group in Berkeley, Calif., on Tuesday, May 24, 2023. (Photo: Ray Chavez/Bay Area News Group)

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