On Tuesday, the Finance Committee took the first big step towards placing a marijuana tax on the ballot. And despite the Tribune’s take on this issue, this tax, if passed, will not just apply to the four medical cannabis dispensaries currently operating in Oakland.
Let me back up a bit though, since the entire story is quite interesting. A couple months ago, James Anthony, a land use attorney who represents Harborside Health Center (one of the four permitted dispensaries), approached several council members about placing a business tax on the ballot. All four dispensaries came on board with the proposal and agreed to pay a tax at ten times the rate of their current tax – 1.2% (or $12 per $1000 of gross receipts).
To me, this is fairly incredible. An industry stepped forward and said, please raise our taxes! Now, it’s not unprecedented in the medical cannabis and larger cannabis community. Those in the industry are mostly willing and happy to pay taxes, as long as they’re left alone by law enforcement.
Once this proposal was out of James Anthony’s hands, city staff and council members considered higher rates of taxation. $24 per $1000 was proposed to make a further dent in the budget. Part of the problem here is that the staff report on this issue is basing estimations of tax revenue on gross revenues from 2007. So they estimate that the $12 rate would bring in $200,000 and the $24 rate $400,000 per year. But I know the medical cannabis industry very well, and I am sure that the numbers have gone up since then (why they couldn’t use the 2008 numbers, I have no clue).
At the hearing on Tuesday, Rebecca Kaplan appeared before the committee and proposed a $14 rate, which the dispensaries had agreed to, even though it was higher than their initial proposal. Nancy Nadel followed, making a motion on the $14 rate, but Ignacio De La Fuente quickly countered that the rate should be $24.
Then came my favorite part of the hearing. Nadel responded that De La Fuente is always a proponent of bringing businesses together, and that’s exactly what she and Kaplan had done. They brought the businesses together and agreed upon a rate that everyone could live with.
But De La Fuente wouldn’t budge, and since the committee was already running 15 minutes past the end of their meeting time (an issue that I’ll write about next week), Jean Quan proposed just leaving the range open for the full Council to decide. And that’s what the committee did, which means that we’ll see an interesting debate and possibly lengthy testimony at next week’s Council meeting.
The story doesn’t end there though. There are a couple of issues that came up during the meeting that I haven’t seen addressed elsewhere. The first is that De La Fuente asked about illegal dispensaries – would they have to pay this tax? What he’s referring to are not always medical marijuana dispensaries but Measure Z adult use clubs that have popped up around the city, against the city’s wishes. Kaplan replied that she hoped this tax could be used as a civil enforcement tool. If those non-permitted marijuana clubs did not pay the taxes, the city could shut them down for this – in the same way as the Mafia was taken down.
Another interesting and important issue is that this tax does not just apply to dispensary sales. From the proposed language in the ordinance, this tax will apply to any cannabis business:
“cannabis business” means business activity including, but not limited to, planting, cultivation, harvesting, transporting, manufacturing, compounding, converting, processing, preparing, storing, packaging, wholesale and/or retail sales of marijuana, any part of the plant Cannabis sativa L. or its derivatives.
Currently, the city doesn’t regulate any cannabis business besides dispensaries, but if they decided in the future to regulate medical growers or edible producers, those people would have to pay this tax as well. And looking further into the future, if marijuana was ever legalized for adult recreational use, this tax would apply to that too. So what started as a proposal for a $12 per $1000 tax on medical cannabis dispensary sales could turn into a $24 per $1000 tax on all marijuana sales, which could potentially bring in millions of dollars of revenue annually.
It will be interesting to see how the City Council hearing goes next Tuesday. I’ll be sure to cover it here.