ENCINITAS – The Encinitas City Council recently adopted a resolution to approve the sponsorship of a voting measure that would allow voters to consider a tax increase on the city’s start-up cannabis industry.
The council on May 11 voted unanimously in favor of a resolution ordering county officials to add the proposed tax increase to the city’s general municipal election measures for the November vote.
If passed by voters, the measure would increase taxes on retail cannabis businesses in Encinitas by between 4% and 7 %% and raise taxes on non-retail establishments. by 1% to 4%. Cannabis cultivation sites will be taxed at fees ranging from $ 2- $ 10 per square foot of canopy area.
The City Council determines the exact rate of taxation for dispensaries in these ranges if the proposal is approved by the voters. City staff estimates the tax measure will generate between $ 800,000 and $ 1.4 million a year in gross revenue for Encinitas.
According to Councilor Tony Kranz, this revenue will go to the city’s general fund, but some of the funds are expected to be allocated specifically to educating young people about cannabis use and enforcement. of the code.
In 2020, Encinitas voters passed Measure H, which legalized the operation of a limited number of marijuana dispensaries within the city limits and overturned a previous council ban on the sale and sale of -cannabis operation.
The following year, the city hired HDL companies, an independent cannabis consulting firm, to assist in the development and review of the cannabis business registration and application process, as well as in the creation of a tax on the sale of marijuana.
California marijuana license holders are already subject to a $ 161-per-pound state cultivation tax, as well as a 15% excise tax, which does not include additional taxes imposed by U.S. officials. city and county.
According to a staff report, the consultants decided on the suggested tax rate of 4% to 7% based on similar taxes imposed by the cities of San Diego, Chula Vista, La Mesa, Oceanside and Vista, all in the 4% -7% range.
Councilor Tony Kranz said he supported the tax proposed by the voting initiative as he believed that the sale of cannabis would result in additional costs for public services, mainly code enforcement and education, especially for young people where enters marijuana use.
Kranz personally opposed Measure H but expressed that due to the passage of voter law, the council was obliged to come up with a comprehensive tax and regulatory structure.
“Existing taxes on cannabis are state-controlled so we don’t see much of that revenue other than a small percentage going into educational purposes,” Kranz said. “But the local impacts of [Measure H] will be significant, and a number of issues will arise because of these dispensaries, and it certainly seems appropriate to raise cannabis revenue to address those costs.
“I still think we would be in a better position if Measure H did not pass, but it did, so we will have to deal with the impacts and there is no doubt that there will be some impacts that could be really significant. We are all dealing with this and I have no choice but to get on board. “
Kranz spoke about the long-term health implications of marijuana use for young people, in particular, and highlighted the city’s key role in educating adolescents about the risks of marijuana use. -cannabis.
“While Prop 64 and Measure H make it clear that this is an adult product, anyone who has been a parent and child to that issue knows that the temptation and opportunity to consume cannabis is all around you,” Kranz said. . “So there are certainly signs that when adolescents use cannabis their minds are still developing and there are long-term implications of this if they are cannabis users, so it’s important that people become aware of this, that this not as benign as once thought. . If you consume too much you could end up in a terrible situation and this should not be taken lightly. “
In public comments made during the council meeting, a majority of the residents who spoke supported the tax measure.
Barbara Gordon, a longtime resident, said a city tax would help alleviate some of the harmful effects of the marijuana industry while providing important revenue for public services.
“These taxes are needed to address the real cost of marijuana businesses to the community,” Gordon said. “Drug driving, impaired driving, treatment programs, and the rising cost of hospital admissions that we have all seen due to marijuana use. The tax can help alleviate youth addiction problems and drug addiction problems in general. It is important to take into account the total cost incurred so that taxpayers do not inadvertently subsidize this industry. “
Mark Wilcox spoke in favor of an even higher tax rate on dispensaries, arguing that further action was needed to mitigate the effects of the medicine on public health.
“These companies disguise their products as safe, fun and healthy, going so far as to represent consumers that their products provide well-being and reassurance to all who seek it,” Wilcox said. “What they don’t tell consumers is that their products have an extreme risk of harm or even death.”
However, some residents spoke out against the voting initiative, arguing that the passage of such a tax would hurt business owners who are already struggling while also pushing up increased costs on consumers and with thus boosting demand for the black market.
Rob Berkowitz is a lawyer with the Coast Law Group and helps represent Caliva, California’s largest vertically integrated cannabis company. Berkowitz said cannabis operations are already struggling to compete with black market operations due to the burden imposed by existing state taxes, calling the tax proposal from 4% to 7% as ” counterproductive “in the public interest.
“There’s a misconception among people in general that it’s easy to make money in this industry,” Berkowitz said. “In fact, it’s very competitive and the margins are really thin, there’s a lot of consolidation going on and a lot of businesses are going out of business and selling their interests. Even the big players are losing dramatic amounts of money right now and one of the reasons is that there is still a strong black market that makes it difficult for those regulated businesses. “
As local dispensaries will inevitably bear much of the burden of the new consumer tax measure, Berkowitz said the proposal would almost certainly benefit black market sellers who do not face the same taxes and regulations such as licensed operations.
Products in the illicit drug market are unregulated and less safe for use by their counterparts in the regulated market; Black market profits from cannabis also tend to benefit criminal enterprises that are connected to other illicit activities as well, Berkowitz said.
“Pushing people into the black market is bad,” Berkowitz said. “Beyond the dispute, the products on the regulated market are tested and the dosage controlled and therefore tend to be safer than what you get on the black market. And then driving people to the black market also reinforces a cartel, so this [tax] will ultimately run all the same activity that these regulations are meant to alleviate.
“In fact, this policy is contrary to the promotion of public safety because it is supporting aspects of the cannabis industry that this state is seeking to move away from.”
David Newman, who has run a cannabis plant in the Oceanside for more than 10 years under Senate Bill 420, has agreed that the proposed tax will invariably benefit black market sellers. He also argued that dispensaries are already over-taxed and over-regulated in the status quo.
“The industry is in the lettuce right now, taxes are killing the industry,” Newman said. “Ultimately, all of this is passed on to the consumer and is annoying, so they end up back on the black market where it costs less and less hassle for sellers. They have already put a lot of paperwork into the application process and the metric system involved which is a nightmare. ”
Newman also sharply criticized the city’s proposal to impose a $ 2- to $ 10-per-square-foot crop tax on a canopy area, arguing that such a proposal would essentially penalize cannabis growers in the case of cannabis. ‘any type of crop failure event’.
“Why does this tax have to be so high? That is to say a canopy tax of $ 2- $ 10 per square foot is ridiculous, nobody is doing it, it’s just a flawed process, “said Newman.” What if I run out of crops if it’s are there any diseases or aphids or anything else? I’m not getting a refund for that product, it’s just too high a cost. $ 10 per square foot basically means you’re not going to make any money, and it doesn’t make sense , to say that if we are going to dry up our blood why are we even bothering with this business? “
Kranz said he was not surprised by such opposition to the voting measure but said it was “unrealistic” for sellers to expect that there would be no additional tax measures imposed by the city because of the passage of Measure H.
“It is not surprising that the people who consume these products and sell these products hope that there will be no additional tax from the city but this is unrealistic, this industry is very anti-taxation and unsurprisingly they think that there are already too many taxes in place, ”said Kranz, while acknowledging that there was a point at which additional taxation measures could push buyers into the black market.
“The reality is that we have to make sure that we are not taxing legal cannabis to the point that people will be buying on the black market and that is a real risk, so it is my goal to make sure that we do not cause this. . it happens. “
Council member Joy Lyndes supported the 4% -7% tax increase, which she said was in line with the recommendations of experts hired by the city and also proportionate to the cannabis tax rates imposed. from other jurisdictions.
“An important element of assessing this is how other jurisdictions are dealing with and responding to this issue, and that was one of the elements considered when these tax ranges were submitted for consideration and approval… l -experts have recommended this rate. The action was to adopt this resolution as a first step towards the submission to the vote in November, “said Lyndes.
