City Council
MEETING DATE: 6/29/2016
TITLE:
Title
Amendments to Medical Cannabis Tax
End
FROM:
Charles P. McClendon, City Manager
Erica L. Vega, Assistant City Attorney
RECOMMENDATION:
Recommendation
Provide direction to staff regarding proposed amendments to medical cannabis tax
Body
BACKGROUND:
The voters of the City of Cathedral City approved Ordinance No. 742 imposing a tax on medical marijuana in November 2014. The tax approved by the voters requires "[e]very person engaged in operating or otherwise conducting a cannabis or marijuana collective and/or dispensary" to pay a 15% tax on gross receipts. The tax is codified in Chapter 3.48 of the Code. The City Council is authorized to levy the tax at a lower rate, and in August 2015 adopted Resolution 2015-50 reducing the rate to 10%. Earlier this year, the City Council adopted Ordinance 775, which amended Chapter 3.48 to include additional administrative procedures, clarify the meaning of "gross receipts," and revise terminology for consistency purposes.
At the time Ordinance No. 742 was approved by the voters, dispensaries were the only medical cannabis uses permitted in the City. Now, the City allows cultivation and manufacturing activity as well. As such, the Council directed staff to explore whether the tax should be amended to tax cultivation and manufacturing activity differently than dispensaries. On May 11, 2016, the City Council held a study session on this issue and directed staff to bring back for a study session proposed language amending Chapter 3.48 to tax cultivation and manufacturing on a basis other than gross receipts, and to suggest any other desirable amendments to the tax.
DISCUSSION:
As discussed at the May 11th study session, Vicente Sederberg has suggested that the City amend Chapter 3.48 to tax cultivation based on the square footage of the cultivation site, and to tax manufacturing based on the weight of cannabis concentrate produced and a flat per unit tax on all cannabis-infused products produced. As such, staff is proposing that Section 3.48.010 of the ordinance be amended to read as follows:
"3.48.010 Imposition of tax.
Every cannabis business operating in the city, regardless of whether such cannabis business has a license pursuant to Chapter 5.88 of this code or a permit pursuant to Chapter 9.108 of this code, shall pay a cannabis tax in the following amounts:
A. Fifteen cents for each one dollar of gross receipts or fractional part thereof received by a dispensary.
B. Twenty-five dollars for each square foot or fractional part thereof of cannabis cultivation space.
C. Fifty cents for each gram of cannabis concentrate produced or manufactured.
D. Fifty cents for each unit of cannabis-infused product other than cannabis concentrate produced or manufactured and packaged or intended for individual sale."
The amount in paragraph A is consistent with the current requirements of Chapter 3.48, but limits the imposition of the gross receipts tax to dispensaries. Paragraphs B through D are consistent with the approach recommended by Vicente Sederberg and the Council's direction on May 11th, but direction is still needed regarding the amount of each tax. As for the amounts of each tax, Vicente Sederberg has provided a memorandum that is attached that provides information regarding the range of amounts used by other cities that levy cultivation and manufacturing taxes.
In addition, staff is proposing that Chapter 3.48 be amended to have the taxes imposed therein to apply to all legal cannabis businesses, whether medical or non-medical. Because the issue of legalizing recreational use of marijuana will be on the same ballot as the revisions to Chapter 3.48, this approach will ensure that if non-medical use of cannabis is legalized in California that the tax will apply to businesses engaged in non-medical cannabis business activities without having to take the tax back to the voters at a later election.
Staff is further proposing that several definitions be added to Section 3.48.020 to clarify the meanings of cannabis, cannabis business, cannabis concentrate, cannabis cultivation space, cannabis-infused product, dispensary, and person. Further, the existing definition of gross receipts is revised to eliminate several of the exclusions from gross receipts that apply to vertically-integrated businesses and related business entities. In staff's opinion, it is better to eliminate these broad exclusions from the definition and instead determine on a case by case basis whether the revenues from particular transactions should or should not be considered part of a dispensary's gross receipts.
FISCAL IMPACT:
The proposed amendments to Chapter 3.48 are anticipated to increase the potential tax revenues to the City from cannabis businesses. At this time staff is not able to estimate the amount of any increase as there are no cultivation and manufacturing businesses presently operating in the City.
ATTACHMENTS:
Vicente Sederberg memo on cultivation
VS Email on manufacturing
Draft Ordinance