Berkeley cuts its cannabis tax rate in half to attract, keep businesses

From left, state Senator Nancy Skinner, Berkeley Patients Group COO Sean Luse and Berkeley Mayor Jesse Arreguin cut the ribbon at the cannabis dispensary on the first day of legalized recreational marijuana sales in Berkeley, Calif. on Monday, Jan. 1, 2018. less From left, state Senator Nancy Skinner, Berkeley Patients Group COO Sean Luse and Berkeley Mayor Jesse Arreguin cut the ribbon at the cannabis dispensary on the first day of legalized recreational marijuana ... more Photo: Paul Chinn, The Chronicle Buy photo Photo: Paul Chinn, The Chronicle Image 1 of / 7 Caption Close Berkeley cuts its cannabis tax rate in half to attract, keep businesses 1 / 7 Back to Gallery

In a boost to a fledgling industry, the Berkeley City Council slashed the city’s recreational cannabis tax rate in half Tuesday to attract and keep businesses in town.

The tax rate, now 5 percent, is among the lowest in the Bay Area and could put pressure on neighboring cities to cut theirs, too.

Critics decried the move as a relinquishing of vital funds after just six weeks of legal adult-use sales. They pointed out that no formal analysis had been done to show whether the possible benefits spurred by new business creation would offset the losses in city revenue.

But business owners and council members said the legislation, introduced by Mayor Jesse Arreguin, was an attempt to level the playing field and bring cannabis in line with other industries. They said the old rate of 10 percent was arbitrary from its inception.

Councilman Kriss Worthington and others also made the argument that cannabis is taxed at every step of the manufacturing process — cultivation, testing, sales and so on — making the effective tax rate four or five times what Berkeley voters actually wanted when they approved a local measure in 2010 setting the non-medical cannabis business tax rate at 10 percent.

Tuesday’s measure passed 7-0 with Councilwomen Sophie Hahn and Susan Wengraf abstaining. It will take effect after a second reading later this month.

“Once you’ve lowered a tax, you pretty much are locking in that reduction,” Hahn said. “This is way too soon to be making a change.”

Berkeley has yet to finalize its licensing process and other cannabis regulations. Arreguin said the rate can be revisited once the full set of ordinances is crafted later this year.

The council appeared to have a consensus around wanting cannabis lab testing businesses to be fully exempt from the city’s tax — or, at least, to get a greatly reduced rate — on the basis that such activities make the substance safer.

The City Council also voted Tuesday to declare Berkeley a sanctuary for cannabis, prohibiting the sharing of information and cooperation with federal authorities on marijuana activities that California has legalized.

Kimberly Veklerov is a San Francisco Chronicle staff writer. Email: kveklerov@sfchronicle.com Twitter: @kveklerov