Cannabis operators in Los Angeles will face steeper renewal fees after the City Council unanimously approved a hike recently, putting added pressure on an industry already dealing with thin margins and increasing competition.
City officials explained that the fee hike is necessary due to declining tax income from the sector, combined with a growing budget shortfall.
However, many cannabis entrepreneurs say this added cost could push them out of business. Luis Rivera, who once ran three cannabis delivery services, has already closed two. He’s now unsure if his last business can survive. “There’s just no more money to pull from,” he said. “These fees could be the final blow.”
The updated fees are projected to raise about $6 million for the cannabis department, which is required to fund itself entirely through fees. Revenue from cannabis taxes, once over $100 million annually, fell to around $90 million in 2024, according to city data.
Multiple factors have led to the drop, including steep local and state taxes, the high cost of running a cannabis business without access to standard banking, and ongoing competition with unlicensed sellers. The illegal dispensaries frequently offer cheaper products since they don’t pay taxes and often operate without oversight, making them hotspots for crime.
The marijuana department’s operating budget for this year is $8.6 million. On top of that, it’s expected to pay out another $19 million to other city departments, including the LA Attorney’s office, for cannabis-related work.
LA has the largest city-run commercial cannabis program in the country, with over 1,000 active cannabis business licenses, including storefronts, delivery services, and cultivation sites.
Officials said the last time fees were adjusted was in 2020. Since then, the department has grown from 37 employees to 63, and wages have gone up by 19% under collective bargaining agreements. According to officials, the current fees no longer cover operational costs.
The most significant increase will impact annual license renewals. A standard renewal will be $12,617 up from $8,486. Temporary approval renewals are set to increase to $6,294 from $4,233. Renewing records will be $2,719 up from $1,829.
Other fee changes include adjustments to fees for reviewing business diagram updates and ownership structure modifications.
While the new ordinance raises costs for legal businesses, it also lowers penalties for some rule violations. For instance, the fine for delivering cannabis outside permitted hours drops from $42,000 to $23,000.
Meanwhile, a new violation category has been added, with penalties of $34,000 for serious offenses like selling products to unlicensed vendors. The goal, officials said, is to strike a balance between deterrence and fairness.
There is some financial relief for operators in the city’s social equity initiative, which supports individuals from communities most impacted by drug-related criminalization. Thanks to a state-funded grant, about $3.1 million in new fees will be covered on behalf of these operators.
The timing of the fee hike coincides with broader financial issues across the city. LA faces a nearly $1 billion budget gap this year. To help close it, the city is implementing layoffs, cutting services, raising trash collection rates for over 700,000 households, and increasing ticket prices at the LA Zoo. Officials are also considering changes to parking fees and meter hours.
Conditions seem to be getting tougher for licensed cannabis firms in Los Angeles with these higher fees. Other firms like Green Thumb Industries Inc. (CNX: GTI) (OTCQX: GTBIF) operating in other markets can sympathize given their experience with similar or other challenges in the markets where they are based.
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