Your guide to L.A. City Measure CB: taxing illegal cannabis businesses

A measure on the June 2 ballot would tax illegal cannabis businesses in Los Angeles at the same rate as their legal counterparts.

Illegal cannabis businesses have a competitive advantage because they don’t have to pay taxes or fees. Proponents of Measure CB argue that it would level the playing field and bring in revenue for the cash-strapped city.

It’s unclear how many illegal cannabis businesses operate in L.A., but the city’s Office of Finance suggested in an August 2025 report that the illegal market was about the same size as the legal market.

Opponents of Measure CB say it could normalize illegal businesses and give the city a financial incentive to keep them open.

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If voters approve Measure CB, it could generate $30 million to $35 million annually for services like street and sidewalk repairs, 911 emergency response, fire protection and parks, according to city estimates.

That amount could decrease as more illegal businesses are shut down. City Council members who support the measure say it could be used to force the closure of illegal businesses that don’t pay taxes.

Under Measure CB, illegal businesses would pay the same tax on gross receipts that legal businesses pay, including 10% on cannabis sales, 5% on medical cannabis sales and 2% on manufacturing, cultivation or other commercialization.

The City Council voted 10-2 in February to put the measure on the ballot.

Councilmember Katy Yaroslavsky, who chairs the budget committee, said at a Jan. 27 meeting that the free pass for illegal cannabis businesses is a “loophole” that should be closed.

Cannabis is one of the few industries in the city in which illegal businesses aren’t taxed, Yaroslavsky said, and added that the potential additional revenue could be reinvested into closing down more illegal shops.

At the January meeting, Councilmember Bob Blumenfield said he supports the measure as a way to crack down on the illegal cannabis industry, drawing a comparison with onetime Chicago crime boss Al Capone.

“They didn’t get him for being a gangster,” Blumenfield said. “They got him for tax evasion.”

A nonprofit advocacy group, Social Equity LA, organized with local cannabis business owners to oppose the measure in letters to Mayor Karen Bass.

Luis Rivera, executive director of the nonprofit, said Measure CB risks legitimizing the illegal cannabis industry while linking city finances to the tax revenue the businesses would generate. The measure also would undermine Proposition 64, the state law that requires cannabis businesses to be licensed, he said. And amid the city’s struggles to track and close illegal cannabis businesses, Rivera said it will be difficult to force them to pay up.

“There’s no guarantee or mechanism to assure that illegal operators will pay the taxes or fulfill their obligations,” Rivera said.

Even if they pay taxes, illegal operators could undercut legal businesses by selling unregulated products and avoiding requirements, such as code inspections and safety tests for merchandise, that legal businesses must fulfill to keep their licenses, he said. For an already struggling industry, the answer isn’t taxing more businesses, he said — it’s lowering taxes.

City officials hope the potential additional revenue would boost the ailing budget and suggest the funds could be reinvested in the legal cannabis industry.

Many legal cannabis businesses in the city are behind on their taxes, collectively owing about $400 million — an amount that includes $100 million in penalties and $35 million in interest, according to an October report from the Office of Finance.

In March, the City Council moved forward with creating an “amnesty” program that would forgive late fees and interest for cannabis businesses that pay their city taxes within three years.

Daniel Sosa, who owns four cannabis dispensaries in the city, told the council he is competing against not only the illicit market but also licensed dispensaries that don’t pay taxes.