Marijuana tax suspended to cut San Francisco crime surge

High taxes on marijuana are believed to help illegal dealers and violence thrive, so San Francisco is holding off on new city pot taxes to help legal dispensaries compete. Illinois and Chicago, where taxes top 40%, may want to pay attention.

To stymie illegal marijuana sales, San Francisco supervisors unanimously voted to temporarily suspend a new city cannabis tax, at least for 2022.

San Francisco voters approved the 1%-5% tax on gross receipts from dispensaries in 2018, but the city tax was not to take effect until New Year’s Day. City supervisors voted 11-0 to suspend it.

San Francisco Supervisor Rafael Mandelman wrote the ordinance. “Now is not the time to impose a new tax on small businesses that are just getting established and trying to compete with illicit operators,” Mandelman said.

Recreational marijuana has been legal in California four years longer than Illinois, a sign that Illinois’s illegal marijuana market could linger as illegal dealers undercut prices of legal weed. Illegal sales were estimated at $2.23 billion for 2021 in Illinois compared to a projected $1.87 billion in legal sales, according to cannabis data firm New Frontier Data. Actual legal sales through November tallied $1.24 billion.

A source in the Chicago Police Department called California a “significant source” of illegal marijuana in Illinois, according to the Sun-Times. A street dealer told the news outlet taxes driving Illinois’ legal price to nearly $80 for one-eighth ounce of smokeable flower have allowed him to raise his illegal prices, plus his customers avoid long dispensary lines.

When Illinois started selling legal cannabis in January 2020, Illinois Policy Institute analysis noted the effects of a high tax burden in helping illegal market sales. Chicago’s weed is taxed at 41.25%.

Colorado curbed its illegal cannabis market by implementing low tax rates initially to compete with illegal dealers. They only raised the taxes when illegal market sales started to dip. The federal government used that strategy to kill bootlegging after Prohibition.

Regardless of a person’s stance on marijuana use, Illinois’ system of licensing and taxation has been flawed.