A social equity group in Los Angeles is worried that the city’s attempt to create tax parity within the licensed and unlicensed cannabis markets would further harm those who play by the rules.
Social Equity LA, a nonprofit organization that promotes fairness, justice and opportunity through access, inclusion and diversity, is circulating a letter among cannabis businesses, organizations and workers that calls on Democratic Mayor Karen Bass to oppose the Los Angeles City Council’s attempt to tax unlicensed cannabis businesses.
The council voted, 14-1, on Feb. 10 to place the tax proposal on the June 2 primary ballot in an effort to ensure that unlicensed cannabis businesses “are subject to the same tax as licensed operators” within the cannabis market.
The Los Angeles tax rates on licensed cannabis businesses include 10% on adult-use sales, 5% on medical cannabis sales, 2% on manufacturing and cultivation, and 1% on transportation, testing and research.
Los Angeles officials believe applying these same tax rates to unlicensed cannabis businesses would generate approximately $30 million to $35 million annually for general services, allowing for infrastructure, first-responder and park improvements. This expected tax revenue represents roughly 0.2% of the city’s budget.
Social Equity LA doesn’t believe the tax revenue justifies the ramifications.
As written, the proposed tax measure would undermine social equity programs “by allowing unlicensed operators to continue operating through tax payment alone, rather than requiring compliance with licensing, labor standards, environmental rules and community benefit obligations,” the circulated letter states.
The letter provides eight other examples of “harmful implications” that the organization believes place licensed operators at a disadvantage, from uneven enforcement to increased competitive pressure and a normalization of illicit activity.
Even if Los Angeles’ unlicensed cannabis operators begin paying the city’s local cannabis taxes, they would continue to evade the state’s burdensome tax structure, including a 15% excise tax at retail.
“We believe Los Angeles should continue to prioritize policies that reward compliance, protect workers and neighborhoods, and uphold the original intent of social equity, repairing harms from past cannabis enforcement while creating real, sustainable economic opportunity and a sustainable industry,” the letter states.
Furthermore, Social Equity LA believes taxing the city’s unlicensed cannabis businesses would undermine the California Department of Cannabis Control’s track-and-trace system, which is set up with the dual purpose of reducing product diversion and increasing consumer safety through ensuring that tested products are compliant with standards for mold, pesticides and other harmful contaminants.
The organization also suggests that taxing unlicensed businesses would divert the city’s enforcement priorities from shutting down noncompliant operations to instead collecting tax revenue from these operations.
The tax proposal represents the latest example of Los Angeles’ “reckless and counterproductive” approach to regulating the city’s cannabis market, Ananda Strategy CEO Hirsh Jain told Cannabis Business Times.
In addition to advising licensed cannabis operators across the supply chain, Jain is the vice chair of the Cannabis Chamber of Commerce.
“For years, Los Angeles allowed illicit operators to function with little meaningful enforcement, a failure that helps explain why legal dispensaries are now struggling and why more than 500 of the city’s 738 licensed cannabis businesses owe outstanding taxes,” he said, pointing to an October 2025 report by SFGATE.
Los Angeles’ licensed cannabis businesses collectively owed roughly $400 million in unpaid taxes, according to the media outlet, which Jain said is a direct consequence of the city forcing compliant businesses to compete against their unregulated rivals, who often operate with impunity.
“After tolerating widespread illicit activity for nearly a decade, the city’s proposal to tax unlicensed dispensaries amounts to an implicit admission that it is abandoning efforts to combat illegal cannabis,” he said. “Worse still, the proposal risks legitimizing illegal operators without requiring them to meet the costly licensing, compliance and social equity obligations imposed on lawful businesses.”
Social Equity LA believes that taxing unlicensed businesses not only condones the illicit occupation of a market share that should be protected under state law, but that it also provides no guaranteed revenue allocation to equity programs, including for operators who have “invested substantial capital and resources to meet stringent regulatory, zoning requirements as well as years of delay just to become operational,” according to the letter.
Jain called the city’s proposal a low blow to Los Angeles’ social equity applicants who were promised a fair and regulated market.
“This policy represents yet another economic betrayal,” he said. “In 2016, Los Angeles boldly proclaimed that it would build the largest and most equitable cannabis market in the United States. Instead, it now stands as one of the clearest examples of how regulatory failure, political mismanagement and overtaxation can undermine an entire industry.”
