Starting this summer, cannabis consumers in Santa Barbara will see higher taxes on non-medicinal purchases.

To help with the city’s budget deficit, the Santa Barbara council voted 5-2 on Tuesday to raise the tax rate for cannabis storefront and delivery retail to 8% from 6%.

The new rates will go into effect July 1.

Councilman Eric Friedman and Councilwoman Wendy Santamaria voted against the increase, saying they worried that it would lead to a decline in sales and hurt the local cannabis industry.

“Ultimately, I think, based on the research, it would actually put more pressure on the industry, and we could exacerbate our deficit rather than actually addressing it,” Friedman said.

The extra revenue from the tax increase is expected to bring in $125,000 to $300,000 each year and won’t apply to legal, nonconforming medical dispensaries, of which the city has two.

Councilwoman Meagan Harmon supported the tax, saying it would only affect residents purchasing a “luxury recreational item.” She also didn’t think the increase was enough to drive down sales.

“I wish, frankly, that we were taxing it higher,” Harmon said. “Personally, I think it’s too low, but I think we owe it to our community to do this, and $125,000 is important, and I think every dollar counts.”

The revenue from the city’s cannabis tax has been declining since 2021, when it brought in almost $2 million. For the past two years, the tax has brought in about $1 million.

Lyndsay Maas, the city’s assistant finance director, said the tax is expected to generate $947,000 this year.

During public comment, Aaron Schulman, a local cannabis manufacturing and delivery operator, said the increase would send customers to the illicit market.

He added that the cannabis industry is already suffering economically because of oversupply and high compliance costs.

“The illicit market does not attend City Council meetings, file tax returns or ask permission — the legal businesses do,” Schulman said. “Santa Barbara showed real leadership when it created a thoughtful cannabis framework, and my hope is that we protect that system before the only market left is one that pays no taxes at all.”

With the increase, Santa Barbara will have the highest cannabis tax rate in the area. 

Santa Barbara County’s current retail tax rate is 6%, which is the maximum allowed. Goleta’s retail tax rate is 5%, with 10% allowed. Solvang’s 5% retail tax rate, with 10% allowed, is for medicinal products only.

When Santa Barbara voters approved a cannabis tax in 2016, they voted for the maximum tax to be 20%, but rates haven’t gone up since 2018. 

Consumers also pay a sales tax of 9.25% and a state excise tax of 15%, meaning Santa Barbara consumers pay a total of 33.2% in taxes for cannabis products. 

While Santa Barbara is allowed to raise the retail tax up to 20%, Maas advised that the city not increase it too much because consumers may be willing to drive to nearby cities to purchase products for a lower price.