San Diego Cannabis Revenue Lower Than Expected After Local Tax Hikes

San Diego is projected to generate less revenue than expected with the cannabis business tax hike that city officials implemented in early 2025. The San Diego Office of the Independent Budget Analyst (IPA) released a report showing that city officials likely overestimated the revenue potential of a cannabis business tax hike they implementedearlier this year.

The report highlights diminished cannabis tax revenues as one of the largest negative variances in the city budget, projecting $19.7 million in cannabis business tax revenue — $1.5 million short of the city’s anticipated $21.3 million.

The authors suggested that “increased competition from the illegal market and decreased wholesale prices caused by an oversupply of cannabis products” caused the shortfall.

“As the cost of living continues to rise all around us, people have to make choices. And if there’s readily available cannabis on the illicit market, and you continue to make it more and more expensive on the regulated market, people are going to be driven back to the illicit market.” — Kimberly Simms, cannabis attorney, via KPBS

California implements a blanket 15% excise tax on the cannabis industry in addition to the state’s 7.5% sales tax, but municipalities can stack local taxes in addition. Operators in cities like Los Angeles, San Jose, and San Diego are faced with tax rates well over 30%, some of the highest in the country.