City Council Staff Report Page 1 of 5 April 28, 2026
Staff Report
Agenda Item No. 5.3
DATE: April 28, 2026
TO: Honorable Mayor and Members of the City Council
FROM: Joan Malloy, City Manager
SUBJECT: Adopt a Resolution Increasing the Cannabis Business Tax Rate Applicable to Retailers Pursuant to Union City Municipal Code Chapter 3.24
EXECUTIVE SUMMARY
Staff recommends that the City Council consider an adjustment to the cannabis business tax rate applicable to cannabis retailers operating in Union City. Pursuant to Union City Municipal Code Chapter 3.24, which voters approved, the City Council has the authority to establish the tax rate for retailers by resolution, up to a maximum of six percent (6%).
The current tax rate is four percent (4%).
Staff is seeking City Council direction on whether to increase the rate and, if so, to what level within the allowable range. Staff also requests City Council direction regarding the preferred effective date of the new rate to ensure adequate time for operator notification, administrative implementation, and system updates.
STRATEGIC PLAN ALIGNMENT
This report is in alignment with the following City Council Priority:
Goal A: Financial Stability and Sustainability
Strategy 5: Implement the City’s cannabis program to attain the anticipated revenue with a commitment to adapting where necessary in light of evolving Statewide trends.
Strategy 11: Assess the effectiveness of the City’s cannabis program to determine whether it is meeting intended objectives, public safety impacts, revenue targets, and other factors.
BACKGROUND
In November 2018, Union City voters approved Measure DD, establishing a cannabis business tax through Ordinance No. 854-18, codified in Chapter 3.24 of the Union City Municipal Code. The cannabis business tax imposed varying excise tax rates on the following cannabis business activities: cultivation, distribution, manufacturing, testing, and Agenda Item No. 5.3
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retail. For retailers, the City Council established an initial tax rate of four percent (4%) of gross receipts. Under this framework, the City Council holds the authority to set the cannabis business tax rate by resolution, including any adjustments up to the allowable not-to-exceed amount of six percent (6%). The City has issued permits only to retailers – there are no operating cultivation, distribution, manufacturing, or testing cannabis businesses in the City.
At its meeting on October 28, 2025, the City Council received a report with recommendations from the Revenue Ad Hoc Subcommittee and its review of the City’s various revenue streams – one of which included the cannabis business tax. Mayor Gary Singh requested, and the City Council then provided direction, for City staff to provide a more detailed report on the cannabis business tax, including statewide trends and local industry impacts, should an adjustment be considered.
Union City currently has two licensed cannabis retailers in operation. Together, these two retailers make up Union City’s commercial cannabis retail presence and are subject to the four percent (4%) cannabis business tax on gross receipts currently in place. As reflected in the following chart, cannabis business tax revenues collected throughout the City have declined gradually.
Chart 1. City of Union City – Annual 4% Cannabis Tax Revenues Collected
DISCUSSION
State Regulatory Tax Landscape
Across California, the cannabis retail sector continues to experience a combination of competitive pressures, regulatory adjustments, and persistent market imbalances between the licensed and illicit markets. Following the 2022 adoption of AB 195, the State FY 2021-2022 FY 2022-2023 FY 2023-2024 FY 2024-2025 FY 2025-2026 (Two Quarters Only)
City of Union City
4% Cannabis Tax of Gross Receipts
Agenda Item No. 5.3
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eliminated the cultivation tax and shifted responsibility for remitting excise taxes directly to retailers.1 Although the excise tax briefly increased in mid-2025 under scheduled statutory adjustments, subsequent legislative action (AB 564) restored the rate to fifteen percent (15%), where it is expected to remain through 2028.2 For retailers, this stabilization of the state excise tax reduces volatility but does not eliminate the margin pressures associated with statewide price compression. There are still ongoing discussions about how to effectively regulate and tax cannabis while ensuring that the legal market remains competitive and sustainable.
Industry data through 2024 and 2025 show that although licensed production has grown gradually, consumer prices for cannabis products continue to decline due to competition, oversupply, and the influence of the illicit market.3 Retailers are experiencing sustained downward pressure on wholesale and retail pricing, even as consumer preferences have shifted toward lower-priced product segments. Despite this, certain categories (particularly beverages and pre-rolls) have shown year-over-year growth, softening the impact of market contraction in other areas. Consumer demand remains stable overall, but price sensitivity has increased, intensifying the importance of competitive pricing among nearby jurisdictions.4
Regional/Local Tax Comparators
Regionally, Union City’s current cannabis business tax rate of four percent (4%) for retailers places it at the lower end of the range of Bay Area jurisdictions. Although tax rates vary across cities, some, such as Oakland, Berkeley, Hayward, and San Leandro, impose higher or tiered cannabis business tax rates, generally falling in the range of five to ten percent (5%-10%), depending on local policy.
Table 1. Alameda County and Cities Permitting Cannabis Retail and Tax Rates (as of April 2026) Counties and
Cities
Retail
(Storefront) No. Allowed Current Tax Rate Maximum Tax Rate Alameda County
(Unincorporated) Allowed 5 None None
Alameda Allowed 4 None None
Albany Prohibited - - -
Berkeley Allowed No Limit 5% 10%
Dublin Prohibited - - -
Emeryville Allowed No Limit 3% 6%
1 California Legislature. (2022). Assembly Bill No. 195 (2021–2022 Reg. Sess.) (Chapter 56). https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220AB195. 2 Office of Governor Gavin Newsom. (2025, September 22). Governor Newsom signs legislation cutting taxes on cannabis, promoting the long-term success of the legal industry. State of California. https://www.gov.ca.gov/2025/09/22/governor-newsom-signs-legislation-cutting-taxes-on-cannabispromoting-the-long-term-success-of-the-legal-industry/ 3 California Department of Cannabis Control. (2025, March). California cannabis market outlook: Executive summary. State of California. https://cdn.cannabis.ca.gov/wp-content/uploads/sites/2/2025/03/CaliforniaCannabis-Market-Outlook-Executive-Summary-FNL.pdf 4 California Department of Cannabis Control. (2025, March). California cannabis market outlook. State of California. https://sbp.senate.ca.gov/system/files/2025-03/4-california-cannabis-market-outlook-fullreport.pdf Agenda Item No. 5.3
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Counties and
Cities
Retail
(Storefront) No. Allowed Current Tax Rate Maximum Tax Rate Fremont Prohibited - - -
Hayward Allowed 3 7% 15%
Livermore Prohibited - - -
Newark Prohibited - - -
Oakland Allowed No Limit
Tiered; Depends
on Gross Receipts
and Equity Rebates
5%-10%
Piedmont Prohibited - - -
Pleasanton Prohibited - - -
San Leandro Allowed 4 5% 10%
Union City Allowed 3 4% 6%
Union City’s tax structure, therefore, remains competitive even if modestly increased.
While cannabis tax revenues have steadily declined, an adjustment to a rate up to six percent (6%) would proportionally increase these revenues if the sales volume of the City’s retail operations were to increase. The ultimate impact will depend on broader retail trends and the operators’ ability to absorb or pass through tax-related costs.
Potential Implications
The City Council should consider statewide market factors that continue to shape the viability of the licensed retail sector. Illicit market activity continues to outpace the legal market in overall volume, contributing to persistent underpricing relative to licensed retailers. As statewide enforcement and regulatory adjustments continue to evolve, many cities have opted to calibrate their local tax structures in response to these dynamics.
Union City’s authority under Chapter 3.24 allows the City Council to adjust the retail tax rate within the allowable range when appropriate to respond to fiscal needs, market conditions, or equity considerations.
Outreach/Notification to Retail Operators
Staff has initiated outreach to the City’s existing cannabis retail operators to notify them of the potential adjustment to the cannabis business tax rate. This courtesy notice was to inform existing cannabis retail operators of their opportunity to provide written or in-person public comment, and also for the City to receive any feedback regarding anticipated operational impacts associated with a future rate change. The operators’ input may help inform the City Council’s direction on whether to adjust the tax rate at this time and, if so, to what level within the allowable range.
While one option is to adopt a single tax rate effective on a specified date, the City Council may also consider an alternative approach. Another option is to implement a phased increase to gradually move from the current rate to the desired final rate over a defined period, which may help reduce immediate financial impacts on the cannabis retail operators. A phased structure could, for example, begin with an increase to five percent (5%), followed by a scheduled adjustment to six percent (6%) at a later date, should the City Council choose to reach the maximum allowable rate.
Agenda Item No. 5.3
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Overall, the proposed adjustment to the cannabis business retail tax rate is presented as a policy option under the City Council’s authority. While an increase up to six percent (6%) remains consistent with regional practice and would provide additional fiscal support for essential City services, City Council may also consider market conditions, operator feedback, and statewide trends when determining the appropriate tax rate for Union City’s regulated cannabis retail sector.
FISCAL IMPACT
If the City Council adopts an increase to the cannabis business retail tax rate, staff will estimate annual and mid-year uplift based on reported retailer gross receipts and adjust the revenue forecasts accordingly.
RECOMMENDATION
Staff recommends that the City Council consider adopting a resolution increasing the cannabis business tax rate applicable to cannabis retail businesses operating in Union City from the current four percent (4%) to a specified tax rate no more than six percent (6%), as authorized under Union City Municipal Code Chapter 3.24.
Prepared by: Jennifer Phan, Deputy City Manager
Submitted by: Jennifer Phan, Deputy City Manager
Attachments
1. Draft Resolution