Struggling L.A. marijuana industry faces increased fees for businesses
In a move aimed at recouping costs amid declining tax revenues from the marijuana industry, the City Council in Los Angeles has unanimously approved an increase in renewal fees for legal marijuana businesses. The new fees, which have not gone up since 2020, represent a significant financial challenge for many operators in the industry.
The most widespread hit for marijuana businesses will come from renewal fees, which will jump from $8,486 to $12,617. Temporary approval renewal fees will go from $4,233 to $6,294, and record renewal fees will increase from $1,829 to $2,719.
These higher fees are significantly straining the survival of legal marijuana businesses. Many operators already face low profit margins and increased competition from illegal cannabis stores that pay no fees or taxes. Business owners like Luis Rivera have already closed some of their delivery businesses and are considering closing more due to the added financial burden. Timothy Dodd, CEO of a cannabis retail chain, noted that many retailers are near closure or personal bankruptcy and that the fee increase makes licensed operation economically untenable. Some argue that this incentivizes operating without a license due to the high cost of legal compliance.
The fee increase is part of a broader pattern of increasing costs and taxes on the legal industry at both city and state levels. High state and local taxes, the high cost of doing business due to a lack of access to traditional banking and financing, competition with the illegal cannabis market, and illegal dispensaries undercutting prices of legal stores have contributed to the falling revenue. After four straight years where gross receipt taxes from marijuana sales exceeded $100 million, the amount dropped to about $90 million in 2024.
Participants in the city's social equity program, which provides support to cannabis operators from communities most harmed by the war on drugs, will have some of their increased fees covered by money from a state grant. City Councilmember Imelda Padilla stated that the fee increases are necessary to maintain the functions of the cannabis department and to avoid further strain on the city's General Fund.
The new ordinance also contains other fee changes, including an increase in the business diagram modification review fee and a drop in the ownership structure modification review fee. Moreover, the new ordinance creates a new category of "severe" violation, such as diverting cannabis to unlawful establishments, which would result in a $34,000 fine.
The cannabis department acknowledges that the new fees will be a hardship for businesses. Executive Director Michelle Garakian wrote in a July news bulletin that the fee study was necessitated by law and central to the department's ability to continue serving the community effectively and equitably.
The city is struggling with a budget crisis likely to continue for several years, and this year's budget closes a nearly $1-billion gap through layoffs and other cuts. The city council has taken steps to raise ticket prices for the L.A. Zoo and may raise trash fees for roughly 740,000 customers, raise parking meter fees, and extend the meters' hours of operation.
In summary, the increased renewal fees for legal marijuana businesses in Los Angeles have risen from about $8,486 to $12,617, with a significant impact on the survival of many legal marijuana businesses. The city council's decision is part of a broader pattern of increasing costs and taxes on the legal industry, contributing to falling revenue and the thriving of the illegal cannabis market.
- Due to the increased renewal fees for legal marijuana businesses in Los Angeles, many operators are struggling to survive, as the fees have risen from about $8,486 to $12,617.
- The city council's decision to increase fees for legal marijuana businesses is part of a broader pattern of increasing costs and taxes on the legal industry, which is contributing to the falling revenue and the continued growth of the illegal cannabis market.
- Business owners in the marijuana industry, such as Luis Rivera, are considering closing more of their delivery businesses due to the added financial burden of the increased fees.
- The new fees are significant financial challenges for many operators in the marijuana industry, especially those that face low profit margins and increased competition from illegal cannabis stores.
