Ten Years of Tax Freedom: San Francisco’s Cannabis Comeback

San Francisco is once again drawing on its deep activist roots to confront one of the most pressing challenges facing California’s legal marijuana industry: unsustainable taxation. By suspending its local cannabis business tax for the next decade, the city is offering a potential blueprint for stabilizing a legal market squeezed by high costs, complex regulations, and the illicit market. 

As California’s largest cities grapple with declining legal sales and operator attrition, San Francisco’s approach underscores a growing recognition that local reform could be the key to long-term market survival. 

‍

San Francisco Suspends Local Cannabis Taxes Through 2035 

‍

In a decisive 8–2 vote, the San Francisco Board of Supervisors approved a 10-year suspension of the city’s cannabis business tax, extending relief to licensed operators through 2035. The policy is intended to reduce financial pressure on dispensaries, cultivators, manufacturers, and distributors operating legally within the city. 

This move stands in stark contrast to other California municipalities. Los Angeles, for example, has imposed local cannabis taxes as high as 10%, contributing to declining legal sales and widespread unpaid tax liabilities among licensed businesses. In response, many cannabis operators have refused to pay these local taxes at all until the city takes action to curb the illicit market there.

By suspending local taxes, San Francisco aims to: 

• Improve price competitiveness with the illicit market 

• Keep compliant cannabis businesses operational 

• Preserve regulated jobs and consumer protections 

• Encourage long-term investment in the legal market 

‍

San Francisco’s Deep Cannabis Reform Roots 

San Francisco’s decision is rooted in its long-standing role as a catalyst for cannabis reform. During the HIV/AIDS crisis of the 1980s, activists such as Dennis Peron helped establish the Castro Buyers Club, one of the nation’s earliest medical cannabis distribution networks. 

This grassroots effort, along with others, led to major policy milestones, including: 

• Measure P (1991): Passed in 1991, Measure P made the enforcement of marijuana laws the city’s lowest law-enforcement priority. While it didn’t legalize cannabis outright, it dramatically reduced arrests and prosecutions for marijuana offenses, creating a safer environment for patients, advocates, and early medical cannabis access. This shift helped lay the groundwork for San Francisco’s role in advancing medical cannabis programs and influenced broader reforms like California’s Proposition 215 in 1996. 

• Proposition 215 (1996): Passed in 1996, California’s Proposition 215, legalized the use of medical cannabis for patients with a doctor’s recommendation, making California the first state to do so. The law allowed patients and caregivers to possess and cultivate marijuana for medical purposes, significantly reducing criminal penalties for medical use. Proposition 215 helped legitimize cannabis as a treatment option, sparked the growth of dispensaries across the state, and set the foundation for modern medical and adult-use cannabis laws nationwide. 

‍

Why California’s Cannabis Market Needs Local Solutions 

Despite being the world’s largest legal cannabis market, California has struggled to suppress illicit sales. Legal cannabis prices often remain higher than unregulated alternatives due to cumulative state and local taxes, compliance costs, and operational inefficiencies. 

Even though California ultimately decided to roll back a recent cannabis excise tax increase after strong pushback from the industry, the damage hasn’t been fully undone. Many licensed operators say their profit margins are still shrinking as costs for compliance, labor, and operations continue to rise. At the same time, access to capital remains limited. This makes it even more difficult for smaller, independent businesses to stay afloat in an increasingly competitive market where expansion and investment are important to longevity.

San Francisco’s tax suspension reflects an acknowledgment that local governments can play a decisive role in restoring balance where statewide reforms have fallen short. 

Innovation, Culture, and Cannabis Normalization 

San Francisco remains a valuable testing ground for cannabis innovation and normalization. The city was among the first in the U.S. to permit licensed cannabis consumption lounges, including the Barbary Coast Cannabis Lounge, often cited as an early model for social-use spaces. 

San Francisco has also seen renewed interest from cannabis retailers and technology companies. In 2024, delivery platform Eaze reopened a physical storefront in San Francisco after restructuring, signaling cautious optimism about the city’s retail future.  

Despite the city’s social equity programs facing criticism and growing pains, the city continues to refine its approach rather than retreat from reform. 

‍

A Model Other California Cities May Follow 

San Francisco’s decision could influence neighboring Bay Area cities and beyond. Berkeley, another early cannabis reform leader, previously maintained a zero-percent cannabis tax before they reintroduced it, prompting renewed debate among local stakeholders. Most recently, Governor Gavin Newsom signed a bill reducing the tax to ease the burden on the legal market. 

If more cities choose to lower or pause cannabis taxes, it could change how the cannabis industry continues to develop across California. Instead of every city trying to maximize short-term tax revenue, regions could start building healthier cannabis ecosystems that make it easier for licensed businesses to keep prices competitive. Over time, that kind of approach could lead to a more affordable and sustainable legal cannabis market. 

‍

Conclusion 

San Francisco’s cannabis tax suspension represents a broader shift in how policymakers view the legal marijuana industry. Instead of treating cannabis like just another source of revenue, the city is prioritizing efforts that ensure operator survival. While California continues to wrestle with legalization realities, San Francisco’s approach may offer one of the most practical and scalable models for reviving the state’s legal cannabis market. 

Note that policy reform is only part of the equation, though. For cannabis businesses to survive and scale, accurate payroll, compliance, and workforce management are essential in a highly regulated state like California. This is where KayaPush can help.  

KayaPush helps licensed cannabis operators stay compliant with complex labor laws, automated payroll, and real-time visibility into workforce costs. Learn how KayaPush supports compliant, scalable cannabis operations.