What is Cannabis Business Tax?

In 2020, Measure H was placed on the ballot through a petition by Encinitas voters and gave residents the opportunity to vote on a change to local regulations to allow certain cannabis-related uses and activities. Measure H, and the associated Ordinance No. 2020-18, was passed, approved, and adopted on November 3, 2020, at the Regular Municipal Election, creating Encinitas Municipal Code Chapter 9.25 (Cannabis Activity), and effectively allowing cannabis retail sales, cultivation, manufacturing, kitchens, distribution, and personal use cultivation, subject to certain regulations and restrictions. Chapter 9.25 requires that the City allow four (4) retail cannabis business to operate in the City.  Non-retail uses are not specifically limited in number.

On November 8, 2022, the voters of the City approved the City-sponsored ballot measure known as the City of Encinitas Cannabis Business Tax Measure (“Measure L”) and the election results were certified by the City Council on December 13, 2022. Of the total number of ballots cast, over 65% of voters approved the measure.  Measure L allows the City to adopt one or more ordinances to impose a Cannabis Business Tax, for revenue purposes, pursuant to sections 37101 and 37100.5 of the California Government Code, upon cannabis and hemp businesses that engage in business in the City.

Under Measure L, the Cannabis Business Tax shall be levied based upon business gross receipts at rates of between four to seven percent (4% to 7%) on retail cannabis uses and one to four percent (1% to 4%) on non-retail uses, except for commercial cannabis cultivation or commercial industrial hemp cultivation which shall be taxed on square footage at rates of between two to ten dollars ($2 to $10) per square foot of canopy area. The City Council adopted Resolution No. 2023-21 setting forth the specific tax rates of the Cannabis Business Tax pursuant to Encinitas Municipal Code Chapter 3.28.

The Cannabis Business Tax Ordinance imposes a gross receipts tax on all cannabis businesses operating within the City. The tax is applicable to any and all persons or entities carrying on a cannabis business, whether or not such business is operating lawfully.  The tax does not apply to personal use of cannabis. In addition, the tax does not apply to personal cannabis cultivation to the extent such activities are authorized in the quantities and or amounts limited by Business and Professions Code sections 11362.1 and 11362.2 and provided the individual receives no compensation whatsoever related to that personal cultivation. 

The Ordinance also defines how the Cannabis Business Tax will be administered in compliance with state law and specifically defines the activities subject to taxation. It establishes registration, payment and reporting requirements, and other procedures and penalties. Furthermore, the Ordinance provides for staff to audit and examine records to determine if businesses are reporting accurate information and are complying with the ordinance.

Link to Municipal Code: Chapter 3.28 CANNABIS BUSINESS TAX

Cannabis Business Tax Rates

Resolution 2023-21 adopted the following Cannabis Business Tax rates:

•Retail cannabis businesses, including but not limited to store-front retail and non-storefront retail (delivery) shall be taxed at a rate of seven percent (7%) of gross receipts.

•Non-retail cannabis businesses, including but not limited to manufacturing, distribution and cannabis kitchens, shall be taxed at a rate of four percent (4%) of gross receipts. 

•Commercial cultivation of cannabis and/or hemp shall be taxed at a rate of ten dollars ($10) per square footage of canopy area.

Link to Resolution: 2023-021 Cannabis Business Tax

Cannabis Tax Schedule and Remittance

Pursuant to Section 3.28.040 of the Encinitas Municipal Code (EMC), the Cannabis Business Tax is reported and remitted on a monthly basis. The tax is due and payable as follows:

• Each person owning a Cannabis Business shall, on or before the last City of Encinitas business day of the calendar month, prepare and submit a monthly tax statement on the Monthly Cannabis Tax Remittance Form (a link to the form is provided below) and remit to the Tax Administrator the tax due. The tax for each calendar month shall be due and payable on that same date that the tax statement for the calendar month is due.
• Tax statements and payments for all outstanding taxes owed to the City are immediately due to the Tax Administrator upon cessation of business for any reason.

City of Encinitas Cannabis Business Tax Remittance Form

Cannabis Tax payments can be made the following ways:

Mail in your completed Cannabis Tax Remittance form along with a check payable to City of Encinitas:

505 South Vulcan Ave

Encinitas, CA 92024

ATTN: Cashier

Or

Email the completed form to CityHallCashier@encinitasca.gov and contact the cashier at (760) 633-2654 to make payment over the phone with credit/debit card. we accept Visa, MasterCard, American Express and Discover. Card payments incur a 3.95% merchant fee.

For additional information, please contact the Finance Department at (760) 633-2654.

Cannabis Tax Remittance Schedule

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