Los Angeles Cannabis Businesses Face Steep Fee Increases Amid Market Challenges

Legal cannabis operators in Los Angeles are bracing for substantial hikes in renewal fees following a unanimous decision by the City Council. These changes aim to offset falling tax revenues from the industry, which has been hit hard by economic pressures, while the city grapples with its own fiscal difficulties.

City leaders argue that the adjustments are essential to sustain the operations of the Department of Cannabis Regulation without further burdening the general fund. The department, which must cover all its costs through fees and charges, anticipates generating millions in additional revenue from these increases to support its expanded staff and rising expenses.

The cannabis sector has seen a decline in gross receipt taxes after years of strong performance, attributed to elevated state and local taxes, restricted access to conventional banking and financing, and fierce competition from unlicensed sellers. Illegal operations often offer lower prices by evading taxes and regulations, exacerbating the strain on legitimate businesses and contributing to related criminal activities.

For many entrepreneurs, the fee hikes could prove devastating. One operator, who has already closed multiple delivery services, is contemplating shutting down his last venture due to razor-thin margins and the inability to absorb the extra costs. Industry experts warn that the timing is particularly poor, as the market contracts under these ongoing challenges.

Los Angeles oversees the country's largest municipal cannabis program, managing nearly 1,100 licenses for retail stores, deliveries, and cultivation sites. Fees have remained static for several years despite staff growth from 37 to 63 employees and salary increases through union agreements.

To mitigate the impact, participants in the social equity program—designed to aid those from communities disproportionately affected by past drug policies—will receive assistance via a state grant. This funding is expected to cover millions in added fees for hundreds of existing and prospective licensees.

These cannabis fee adjustments align with broader city efforts to address a persistent budget shortfall, including higher charges for zoo admissions, trash services for hundreds of thousands of residents, and potential increases in parking meter rates with extended hours.

Department officials recognize the hardship on businesses but emphasize the legal necessity of the changes to maintain equitable and effective regulation amid limited resources and competing priorities.