SOCAL: Oceanside sets tax rates for cannabis businesses

The San Diego Times reports…

Oceanside has approved its first tax rates for medical cannabis businesses, setting the numbers low to help start-ups get going against illegal operators and legal competitors in other cities.

“If we overtax and make it too burdensome, these places that are following the rules, trying to be good neighbors and not sell to children, are going to get sidelined,” said Councilman Ryan Keim. “People will get it somewhere else.”

The City Council voted 4-0 at a Dec. 16 meeting to approve tax rates of 2.5 percent for manufacturing, 2 percent for distribution, and 1.5 percent for cultivation. City staffers, based on a consultant’s report, had recommended rates 1 percent higher in each category.

“I personally would like to see the taxation even lower to allow the legal businesses, the ones that are doing it right, to get up and running,” Councilman Christopher Rodriguez said at the meeting. “We could charge these guys an arm and a leg, but that is only enforcing the illegal market.

The City Council introduced its medical cannabis licensing ordinance in March 2018, and has amended or modified it several times since then. Most recently, in June, the council voted to add commercial cultivation of recreational cannabis, also called adult-use, to its list of regulated businesses.

Oceanside voters Nov. 3 approved Measure M, which allows the city to tax cannabis businesses at rates established by the City Council.

While a number of businesses have applied for the cannabis licenses, so far only one manufacturing company is up and operating, city officials said.

Oceanside allows only off-site sales and delivery of cannabis, not store-front retail sales. City staffers recommended that if city decides to allow retail sales that those businesses should be taxed in the highest category of about 5 percent.

Cannabis taxes are intended to help defray the costs of enforcing marijuana laws and to provide a steady stream of additional revenue to cover general city expenses including police and fire protection, said Assistant City Manager Michael Gossman.

The tax rates recommended in the city staff report were expected to generate 1.9 million in revenue annually once businesses were in full operation on all available city licenses, which could take two or three years. Staffers have not yet calculated how much revenue the 1 percent lower rates might produce, Gossman said.

One speaker at the council meeting, parent and youth group mentor Becky Rapp, said the city is being unnecessarily lenient, and that it should pay more attention to “the real costs” of cannabis business such as higher crime rates.

Another speaker, Gracie Morgan, director of operations at Oceanside license -older MedLeaf Delivery, said she supports taxation and asked the council to schedule a discussion of recreational cannabis uses at a future meeting.

Council members said the cannabis businesses need to become established before they become a significant source of tax revenue, and that the city could increase tax rates after that happens. City officials will update the council on the progress of cannabis businesses periodically beginning in about six months.

Vista is Oceanside’s nearest competitor in the medical marijuana business. Voters there approved a ballot measure Nov. 6, 2018, that allows up to 11 storefront retailers.

Vista taxes medical cannabis retailers at the rate of 7 percent of gross receipts. Most other cities in San Diego County have passed ordinances to outlaw cannabis sales, even though the state has legalized it.

At the southern end of the county, the city of Chula Vista taxes retail marijuana sales at 7 percent of gross receipts and cultivators at the rate of $15 per square foot of canopy.

The city of San Diego legalized cannabis dispensaries about five years ago and now has 25 approved outlets.

San Diego initially taxed its retail outlets 5 percent of gross receipts. In 2019, the city increased the tax to 8 percent.


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