Cannabis customers soon may notice higher taxes when purchasing products in the city of Santa Barbara. 

In an attempt to generate more revenue as the city faces a budget deficit, the Santa Barbara Finance Committee on Tuesday recommended that the Santa Barbara City Council review an ordinance that would raise the tax rate for cannabis storefront and delivery retail from 6% to 8%.

The committee — which consists of council members Eric Friedman, Wendy Santamaria and Meagan Harmon — voted 2-1 in favor of sending the ordinance to the full council. Santamaria voted no.

She said she was worried that raising the tax could backfire and that consumers would just drive to Goleta to purchase products at a lower rate. 

“The voters are the ones that are going to be paying for that increased tax. The cannabis tax is already one of the highest in South County,” Santamaria said.

The proposed tax rates are set to go to the full City Council for review on March 17, with options to not include medicinal purchases.

If approved by the council, the new tax rates would go into effect July 1. 

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 $1 million in revenue. Lyndsay Maas, the city’s assistant finance director, said the tax is expected to generate less than $1 million this year.

If Santa Barbara does raise the tax from 6% to 8%, Maas said city staff expect it would bring the city an additional $200,000 to $400,000 in revenue. 

There are six cannabis business categories that bring in tax revenue: storefront retail, retail by delivery only, manufacturing, distribution, testing, and indoor cultivation. 

City staff recommends raising tax rates only for storefront retail and retail by delivery because those categories bring in the most revenue, Maas said.

Harmon said she strongly supported raising the tax, but wanted it to apply only to recreational cannabis purchases — not medicinal ones.

“To me, it is a very, very different set of facts when we’re talking about medicine versus a luxury recreation,” Harmon said. 

Santamaria also said she wouldn’t support an increase on medicinal products, but even without that, she was concerned about the impacts to businesses. 

“I have concerns even for recreational just simply because we don’t want to put these retailers out of business,” Santamaria said. “We are benefiting from those taxes, and we have a duty to make sure that we are not just implementing every tax that comes before us.”

Santa Barbara County’s current retail tax rate is 6%, which is the maximum rate 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, Maas said.

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 raise it too much because consumers may be willing to drive to nearby cities to purchase products for a lower price. 

Friedman said he was concerned about the impact to retailers but that the whole council should have an opportunity to review the ordinance. 

He added that he was hopeful about the projected $200,000 to $400,000 in revenue that the tax rate could generate. 

“That is not going to solve our budget, but it is significant … we’re trying to really right the ship, and we need revenue next fiscal year to do that,” Friedman said.