The whole story on Oakland’s proposed marijuana tax

9 Apr

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.

9 Responses to “The whole story on Oakland’s proposed marijuana tax”

  1. Lexica April 9, 2009 at 9:31 am #

    Interesting. If they start taxing medical growers and edible makers, but continue taxing the dispensaries, wouldn’t that result in double taxation? For sales tax, as I understand it, other businesses don’t need to pay the sales tax when they buy something wholesale; the tax happens at the time of retail sale to the consumer.

    • Becks April 9, 2009 at 9:44 am #

      It would be a double taxation. This is a bit different than a sales tax though – it’s a gross revenue tax. Sales taxes cannot be applied twice, but gross revenue taxes can be.

  2. Alan from Berkeley April 10, 2009 at 12:30 pm #

    It may be helpful to make a distinction between “business taxes” based on gross receipts including services, and sales taxes or value-added taxes (VATs) normally assessed on products (but not services).

    Oakland seems to be exploring the taxing of marijuana “businesses.” But since we’re talking about what’s ultimately consumable weed, the VAT model may fit better. That’s especially true if we look at marijuana businesses that are not involved in end-user sales, i.e. processing steps such as “planting, cultivation, harvesting, transporting, manufacturing, compounding, converting, processing, preparing, storing, packaging, . . .” In a VAT jurisdiction a tax is assessed at each stage of a production process; and the rate is normally different because each stage adds a different amount of value to the final product.

    I agree that a gross-receipts tax is probably the only thing possible soon. But looking at our total local and regional marijuana INDUSTRY, not just the dispensaries, makes me think that we should be advocating more of a VAT approach as a (distant) next step.

  3. Mike in Oakland April 14, 2009 at 9:06 am #

    I wonder why we are talking about taxing the marijuana business at all.

    Presumably most of the tolerated marijuana use in Oakland, on which the taxes will be based, is related to its medical benefits. So we are ready to tax all those poor folks with emotional problems for which pot is a lot better help than alcohol or smack. Or those Iraq War vets with PTSD.

    Great thinking, folks. So full of social sensibility and compassion.

    • Becks April 14, 2009 at 12:34 pm #

      Medical marijuana is already taxed in California – the Board of Equalization ruled years ago that medical marijuana was subject to sales tax. So taxing medical marijuana is nothing new.

      All over the counter drugs are subject to tax; only prescription drugs are not subject to tax. One day, when the federal government reschedules marijuana and patients can get their medication at the pharmacy, this medicine should not longer be subject to a tax. Until then, as I stated above, most medical cannabis providers are willing to pay their share.

      • Mike in Oakland April 14, 2009 at 4:21 pm #

        So, medical marijuana is already subject to a regressive tax scheme. My point was that further regressive tax schemes are not the way to increase revenues in an economic downturn. My point is the same with the proposed sales tax increase. Whether or not the anticipated tax payers “are willing to pay their share.”

        • Becks April 14, 2009 at 4:25 pm #

          It’s actually not a sales tax that’s being proposed – it’s a gross revenue tax. The dispensaries have all stated that they will attempt to pay the tax without passing on additional costs to patients – but this might be more difficult if the council holds out for the higher rate.

          Mike – it sounds like you feel very strongly about this issue. It might be worth expressing your concerns to the council.

  4. Buzzed April 23, 2009 at 8:28 pm #

    Cannabis tax increase could bring ‘couple million’ in revenue

    Oakland city councilwoman Rebecca Kaplan said that the proposed tax rate increase for medical cannabis could bring in “a couple million” in revenue to the city — far more than the $200,000 to $400,000 that was cited in the agenda report. …

    –San Francisco Business Times, March 30, 2009
    http://www.bizjournals.com/sanfrancisco/stories/2009/03/30/daily16.html

    ___________

    So is two million bucks real, or is Kaplan blowing smoke?

  5. newoaktown June 16, 2009 at 9:43 am #

    i wrote a basic proposal about actually growing it in the city here-

    http://newoaktown.wordpress.com/2009/06/13/uptown-lot-proposal-grow-hemp-on-50-of-it/

    cheers.

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