A Local Guide to Southern California Cannabis Taxes: What LA, San Diego, and Riverside Dispensaries Need to Know
Cannabis dispensaries in Southern California have unique tax concerns. In addition to federal taxes and the onerous burdens of IRC 280E, they must maintain separate accounting for state taxes to maximize deductions, while adhering to local cannabis tax legislation that varies significantly from jurisdiction to jurisdiction.
Today, we’ll discuss California cannabis taxes, with a particular focus on Los Angeles, San Diego, and Riverside dispensaries, and how local retail taxes can impact their accounting.
Cannabis Taxes for SoCal Dispensaries
Dispensaries in California pay several taxes, which vary based on the dispensary’s location and whether the sales are for medical use or adult-use recreational cannabis.
Adult-use retail cannabis is subject to 7.25% state sales tax, while medical cannabis is exempt for users with MMIC authorization. Dispensaries must maintain documentation for all exempt sales to substantiate the exemption for audit purposes. Keep in mind that despite the state-level exemption for qualified medical patients, many local jurisdictions still apply their own sales tax surcharges (district taxes) on medical cannabis sales.
California imposes a state cannabis excise tax on gross receipts from all retail cannabis sales (medical and adult-use). As of July 1, 2025, this excise tax rate is 19% of gross receipts, up from the previous 15%. This excise tax is charged on the retail sale of cannabis before applying general sales taxes (we will discuss the order of tax calculations later). Every dispensary is responsible for collecting and remitting this excise tax to the state.
Cities and counties may levy additional taxes on cannabis businesses or sales. These come in two forms: general district sales taxes (which apply to all retail goods in the area, cannabis included) and cannabis-specific business taxes (special gross receipts taxes only on cannabis operations). Local tax rates vary widely and can significantly increase the total tax burden – we will cover specific local taxes in the next section.
Local and district taxes
While the above section represents California’s mandated retail cannabis tax structure, dispensaries in certain areas tack on an additional tax. Local cities and counties are permitted to levy their own taxes on cannabis businesses and retail sales as they deem necessary.
Here are a few examples of local cannabis tax rates in the region:
City of San Diego: 8% tax on gross receipts for non-medical (adult-use) cannabis sales. Cannabis production facilities in San Diego pay an additional 2% tax on top of this base rate.
City of Santa Barbara: 20% tax on gross receipts from cannabis sales – one of the highest local cannabis business tax rates in the states. This steep tax applies to both medical and adult-use cannabis in Santa Barbara.
City of Santa Ana: Historically levied a 10% tax on gross receipts from medical cannabis sales – among the highest for medical cannabis. (Santa Ana has since reduced its cannabis taxes to 5% for medical and 7% for recreational as of 2023, to help licensed dispensaries remain competitive.)
City of Los Angeles: 10% tax on gross receipts from adult-use (recreational) cannabis sales and 5% on medical cannabis sales. These are the current cannabis business tax rates in Los Angeles city, established under Proposition M. For example, a $1,000 sale of adult-use cannabis in Los Angeles city incurs $100 in city cannabis tax, while the same amount in medical cannabis sales incurs $50 in city tax.
As you can imagine, this patchwork of local taxes creates a complex accounting situation and is a key factor in business planning – especially when a dispensary is considering expansion into new cities or counties. In addition to these cannabis-specific taxes, most areas also have district sales taxes that raise the overall sales tax rate on cannabis. (Local sales tax add-ons can push the total sales tax in some California locales above 9% or even 10%. You can find the current sales tax rates for any city or county on the California Department of Tax and Fee Administration (CDTFA) website.
It’s worth noting that not all municipalities impose a cannabis business tax. For example, until recently the City of Riverside did not have any special cannabis tax. (Voters approved a measure in 2024 allowing Riverside to tax cannabis businesses up to 10% of gross receipts, but the City Council initially set the rate at 8%.) In locales without a dedicated cannabis tax, some dispensaries have opted to add a small “community benefit fee” (or service fee) to receipts in lieu of a tax. This is a voluntary charge that businesses use to support community development initiatives or offset impacts, and it can be presented to customers as a way to give back locally. If you use such a fee, remember that it still increases the total price and may be treated like any other part of the sale for tax calculation purposes.
District tax rates for deliveries
Any deliveries of cannabis products to an area with a district tax must include these taxes in the sale price appropriately. And here’s where it gets tricky. If your dispensary is in a district that has one tax rate, but the delivery is in a different district with a different rate, you must charge the rate applicable at the delivery location.
This further complicates accounting and pricing, as you can imagine.
Calculating taxes
All taxes on cannabis must be clearly noted and categorized on customer receipts, which adds another layer of complexity for accounting. The order in which you apply these taxes matters. Generally, the calculation works as follows:
Start with the product’s base price. If your city imposes a local cannabis tax or you add any fees (such as a city cannabis business tax or community benefit fee), add these on top of the base price. This sum (product price + local taxes/fees) is the initial gross receipts amount for tax purposes.
Apply the state excise tax (19%). Calculate 19% of the gross receipts from step 1 and add that excise tax to the total. (Remember, the excise tax is applied to gross receipts, which by definition include any local cannabis taxes or fees. In other words, the state considers those local charges as part of the selling price when calculating excise tax.) After this step, the sum of the product price, local taxes/fees (if any), and the 19% excise tax represents the tax-included total used for the next step.
Calculate sales tax on the new total. Now apply the general sales tax (7.25% state base + any district additions) to the total from step 2. Because the excise tax is built into the price at this point, sales tax is effectively being charged on the product price plus the excise tax. (This is sometimes described as a tax on a tax, and it’s one reason cannabis customers see such high tax rates on their receipts.)
Add any remaining fees. If there are other applicable fees (for example, a cannabis education fee or other local regulatory fee), those would generally be added at the end. Most standard transactions, however, will have been fully taxed by the previous steps.
To illustrate, suppose a dispensary in Los Angeles sells a $100 adult-use cannabis product and the city’s 10% cannabis tax is passed on to the customer. The breakdown would be: $100 base + $10 city tax = $110 gross receipts. The 19% excise tax adds $20.90 (which is 19% of $110), bringing the subtotal to $130.90. Sales tax is then applied on $130.90 – at Los Angeles’s 9.5% combined sales tax rate, that’s about $12.44 in sales tax. The customer’s final price in this scenario would be roughly $143.34, which includes about $42.34 in taxes and fees. Dispensaries must itemize each tax on the receipt (state excise tax, state/local sales tax, local cannabis tax or fees) with a clear description of each charge.
In summary, “gross receipts” for cannabis tax calculations refers to the total of the product’s price plus all applicable taxes and fees except the general sales tax. This gross receipts amount is used to determine the excise tax, and once the excise tax is added, the sales tax is calculated on top of everything. Keeping these calculations straight is critical for accurate reporting and to avoid underpayment. Missteps can lead to significant penalties, which we cover next.
Tax exemptions
Even though medical cannabis (with proper MMIC documentation) is exempt from the 7.25% state sales tax, it is not exempt from the state excise tax or necessarily from local taxes. Medical patients must still pay the 19% excise tax on purchases, and depending on the jurisdiction, they may also pay local district sales taxes or a reduced local cannabis tax. Dispensaries should maintain up-to-date MMIC documentation and retain detailed transaction records for all tax-exempt medical sales. These records will be essential to substantiate the exemptions during an audit. In practice, this means keeping copies of customers’ MMIC cards on file (or using your POS system to track the ID numbers) and ensuring every tax-exempt sale is logged with the reason for exemption.
Tax Accounting Tips for Southern California Dispensaries
Cannabis taxation in California is complicated at the best of times. The base price of the product often increases by 20% or more when all state and local taxes are added. Dispensary receipts must itemize each line item with a clear description of what the charge is for.
Fortunately, cannabis-specific point-of-sale (POS) systems help you separate these items, making accounting and reporting a lot easier. You will, however, need to configure the system initially to ensure all rates are assigned correctly. Some may provide cloud-based updates to account for tax changes; however, diligence remains essential. Non-compliance with state and local taxes can put your dispensary at a disadvantage, leaving you subject to fines, penalties, and unnecessary auditor scrutiny.
Here are a few more handy tax tips that may help:
· Keep your books clean and up-to-date. Since California has vastly different taxation from the feds, maintaining separate ledgers can help you maximize 280E deductions at the state level. Clean books support a smooth audit process and will make reporting a breeze.
· Review local and state tax rates periodically to identify any changes. True, the legislative environment is a bit of a moving target. However, working with a qualified cannabis accountant can help you stay on top of any changes you should be aware of.
· File and pay on time. Most dispensaries are required to file state and local taxes on a monthly basis. Smaller businesses may be eligible for quarterly filing if the CDTFA criteria allow. A 50% penalty applies to late filing.
· File returns on the proper forms. Cannabis retailers are required to file excise tax, local, and state sales tax separately.
· You must file even if you have no sales to report. Even during slow periods or if your dispensary was closed, you must file tax returns even for zero sales. A $0 return filed on time keeps you in compliance. If you fail to file, the state could assume tax is owed and assess a liability or penalties. It’s better to take a few minutes to file a no-activity report than to deal with notices later.
· Cannabis businesses with a large volume of exempt sales may be subject to more frequent audits, so it pays to keep your documentation in order.
The Bottom Line for Dispensaries in SoCal
California cannabis taxes are complex, to say the least. Consistent effort must be made to maintain accurate books, reconcile with Metrc, and ensure that cash transactions are meticulously documented so that all state and local taxes are calculated and collected properly.
If you’re feeling challenged by state and district cannabis taxation, speak with the experts at Growise, and let’s get your dispensary back on track.