Calif. rejects legal pot, but cities embrace drug
OAKLAND, Calif. – Californians may have rejected legalizing recreational marijuana, but voters across the state are more than ready to reap revenue from the state’s largest cash crop.
On Election Day, all 10 cities with local measures on their ballots approved new or higher taxes on marijuana sales that put the need for cash above the stigma of a federally banned drug.
The same was true in Colorado, where medical marijuana was approved in 2000. Nine municipalities approved higher sales taxes on medical marijuana products this year. So far, no Colorado town with a marijuana tax question on the ballots has rejected it.
The embrace of pot as a legitimate revenue stream signals the continued mainstreaming of marijuana in both states, despite the defeat of California’s Proposition 19.
“As part of treating this business like any other business in the city, we need to update our business operation tax to include them,” said Amy Williams, a spokeswoman for the City of Sacramento, where voters approved a 4 percent tax on medical pot.
Other cities that approved special marijuana taxes, including San Jose, Long Beach and Oakland, have all struggled with recession-driven deficits, and all decided to look to marijuana to bridge the gap.
Some cities put measures on the ballot to prepare themselves in case voters approved Proposition 19, which included a provision that would have legalized small-scale cultivation of marijuana across the state.
Long Beach’s measure, which passed overwhelmingly, would have imposed a 15 percent tax on businesses that sold marijuana for recreational use.
Voters in Stockton imposed a 4 percent tax on medical marijuana dispensaries. The same measure would have levied a 10 percent tax on non-medical marijuana businesses.
Oakland voters led the way last year by passing the country’s first special tax on medical marijuana, an extra $18 for every $1,000 in sales on top of the city’s regular sales tax of 9.75 percent. In the most recent election, voters raised that tax rate to $50 for every $1,000.
And the city is poised to lead again in pushing the limits of government-sanctioned pot sales. Later this month, the city will begin taking applications for permits to run four industrial-scale medical marijuana growing operations.
Nearly 300 groups and individuals have registered their interest in applying for the permits. Each would have to pay a $5,000 nonrefundable fee to apply. Recipients of the permits would be required to pay an annual fee of $211,000.
The decision to tax the drug in a way that resembles special taxes on recreational substances like alcohol and tobacco moves the state even closer to acknowledging openly that marijuana being sold legally under state law is “medical” in name only.
Currently, tobacco distributors in California must pay 87 cents in taxes per pack of cigarettes and a tax rate of more than 33 percent for other tobacco products. Beer and wine are taxed at a rate of 20 cents per gallon. Hard liquor taxes are $3.30 per gallon for spirits less than 100 proof and $6.60 per gallon for over 100 proof.
Medical marijuana advocates are frustrated by the comparison to other mood-altering substances. They believe that what they see as the drug’s broad therapeutic properties should put pot in the same category as prescription medications, which are not taxed.
They also believe that not granting the drug the respect they think it deserves as medicine has led to crackdowns in other California cities less enthusiastic about embracing marijuana as a revenue source.
Recent regulations have forced many dispensaries in Los Angeles to close, after a loophole in a moratorium on such operations allowed hundreds of pot retailers to open, turning the city for a time into a free-for-all of legal weed.
San Diego prosecutors have waged a long-running battle against dispensaries, arguing that state law does not permit the retail pot storefronts that have become the norm.
Fresno officials used zoning laws to shut down dispensaries, while an outright ban on dispensaries in Anaheim remains tied up in court.
In San Jose, some dispensary operators are frustrated by what they see as contradictory messages from city government.
On the one hand, the City Council has been working to reach an agreement on regulating as many as 80 pot retailers that have sprung up in the past two years. At the same time, county narcotics officers have led raids on dispensaries that investigators say are using medical marijuana as a pretense to sell drugs.
Yet how much revenue cities will really see from marijuana remains difficult to predict. Dispensaries have always been required to pay state sales tax like any other business, but many would rather risk state penalties for not paying taxes than leave a paper trail for federal authorities.
While the medical marijuana business has made some entrepreneurs wealthy, taxes on the drug are not universally viewed as a salvation for ailing local economies.
In Sacramento, officials estimated that taxes on dispensaries would realistically bring in about $500,000 per year. A financial review earlier this year projected deficits topping $50 million annually in coming years.
“Of course we need whatever we can get, but it’s not going to make a huge dent in our problem,” Williams said.
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