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Home News

City exploring marijuana tax options

March 23, 2018
in News, Top Stories
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City exploring marijuana tax options

Ken Sobel explains why he is opposed to taxing medical marijuana at the forum on city excise taxes for future marijuana businesses on Feb. 28. (Photo by Jeff Clemetson)

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Jeff Clemetson | Editor

When La Mesa voters passed Measure U, paving the way for medical marijuana businesses to open in the city, one of the upsides of the new law was that it could potentially add millions of dollars to the city’s budget.

On Feb. 28, city staff, interested marijuana entrepreneurs and city officials met at the La Mesa Community Center for a discussion on local taxing options for future medical marijuana businesses. The discussion was led by consultant David McPherson, cannabis compliance director for HdL Companies.

Ken Sobel explains why he is opposed to taxing medical marijuana at the forum on city excise taxes for future marijuana businesses on Feb. 28. (Photo by Jeff Clemetson)

McPherson’s presentation laid out different strategies for taxing growers, manufacturers, distributors and retailers, but cautioned on overtaxing the new industry.

“Some cities think, ‘Let’s just tax and get everything we can if we’re going to have them in town,’” he said. “Well, you have to look at it as a goal of sustainability. How do we create a tax point that is going to be successful in getting the proper revenues that we want but at the same time we’re not going to end up with a lot of vacant buildings in 18 months?”

To find that special “pain point” — the tax level where the burden is too hard on legitimate businesses to compete with black market actors — the marijuana industry looked to another industry that also was prohibited and then legalized: alcohol.

“When alcohol first came out, there was a lot of black market bootlegging related to finding that pain point,” he said. “What is that pain point? Well over 40 to 50 years that we have had regulations of alcohol, we found that 30 percent is that threshold where you have all these regulations and taxing mechanisms and touching points involved in the process, that 30 percent [of the total retail cost] seems to be that acceptable range.”

So, what portion of that 30 percent would be the city’s? According to the mockup in the presentation, a little less than 7.5 percent of total retail cost. In McPherson’s mockup, the city would take in approximately $400 for every pound of marijuana sold.

But it is not just the numbers that the city will need to consider. The way businesses are taxed is equally important. For example, taxing growers by the square foot as opposed to taxing receipts makes it easier to prevent fraud in the all cash marijuana business. This can bring in less money over time due to inflation because the tax amount stays constant, even as the money’s purchasing power is diminished. Still, McPherson said, taxing by square foot of grow space is better because it also solves the problem of businesses that are integrated with both retail and grow operations. Taxing gross receipts works for all other types of businesses including retail, manufacturing and delivery.

McPherson also said it is important for cities to use stabilization in setting tax rates, making a set flat rate over a set amount of time with a “not to exceed” component so that businesses can plan for the tax burden and not be caught by surprise with a tax bill no one had planned for.

At the end of the presentation, City of La Mesa Director of Finance Sarah Waller-Bullock addressed the audience before opening the floor for questions.

“We’re not in the business of putting you out of business,” she said. “We’re just trying to get something that is going to work for us and for you.”

A pivot to recreational?

Despite the complexity of the tax issue, there was only one question on the minds of the marijuana business entrepreneurs at the presentation: Will the city ever allow recreational marijuana sales?

“Right now, Measure U only allows for medical marijuana,” Waller-Bullock said, but added that she will bring all the information gathered about taxing recreational and medical to the city council for consideration.

David McPherson (Courtesy HdL Companies)

“It is going to be hard for La Mesa to get support from industry for this tax without opening up recreational,” said Gina Austin, an attorney who works with marijuana businesses.

Waller-Bullock said the city will likely write a tax for medical but leave it open to implement for recreational if it is allowed in future.

La Mesa resident Ken Sobel, who is hoping to open a manufacturing facility for medical marijuana products, said the city should put a tax on adult side only and leave medical untaxed because 90 percent of sales would be recreational.

“I think if we work collaboratively towards this, and we get the city council to give us an [adult use] license, and give us self-distribution rights, then we can build program that provides a lot of money — in the tens of millions of dollars,” he said.

Rocky Goyal, who owns or is part owner of several marijuana businesses already operating in San Diego, said that taxes are going to be hard because the profit margins made by medical marijuana businesses aren’t “that great.”

“They’re certainly not what I thought they were and what people think of when they think of this business,” he said.

McPherson agreed that competing against businesses in municipalities that allow for recreational marijuana sales will someday be a problem, but that the medical marijuana market is still the dominant market.

“We’re seeing a transformation, mostly the big cities, moving to adult use. In the short term, you don’t have the immediate compression problem of just selling medical because 85 percent is medical,” he said, but added that the city will need to be “strategic” about recreational adult use in the future.

— Reach Jeff Clemetson at jeff@sdcnn.com.

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Thomas Tony Vance

3 hours ago

Thomas Tony Vance

An Economy and a Future That Includes All Our Citizens!

As much as we might hate it the 2020 election season started the second the mid-terms were over. Many old hats on the left were surprised that many of the young Democratic candidates won while espousing progressive policies and goals. If this is any indication then to win in 2020 Democrats need to offer the poor and middle class a new, 'New Deal'.
Damaged and disheartened, lied to and taken advantage of by the wealthy and those determined to hold power at any cost, they are yearning for relief and someone to actually do something to better their circumstances, and give them hope for a better future for them and their children. Healthcare for all, Free tuition at public colleges, Social Security at age 50 and some form of a limited Universal Basic Income to lift all our citizens out of abject poverty and give all our children a financial platform with which to begin their lives as productive adults in a thriving economy.
I watched an episode of the business program ‘On the Money’ on Sunday July 30, 2017. The first and main topic was something called Universal Income. The idea that instead of all the poverty programs and such, the Government should just give everybody a check every month for $1000 dollars. When one considers the gap between rich and poor, the rate of automation and the fact that there will never be enough jobs to go around it might be a better way of keeping our folks out of abject poverty. The drawback was the cost. One of the commentators said it would cost upwards of 3 trillion dollars. However there is a way to reach the goal of a Universal Income, eliminating abject poverty, and at a much lower cost. Here’s how.
Start by expanding Social Security. Eliminate the cap on taxable income and raise the tax to 8% from the current rate of 6.2%. Then lower the age of eligibility to 50 years.
Create a stipend that will give a check to all adults and High School Grads of $1000 a month. Those who do not finish High School should have to wait till they are 20 to encourage them to finish school. They can use this fund to support them if they go to college or to help them in getting started in life. Our wealthy students are able to go to college and do well precisely because they have a financial platform to support them. This would give all our students the same support. Every child we shepherd thru College is possibly the guy who will cure cancer or invent star drive or save the planet. Investing in our children is like buying a lottery ticket for humanity! To pay for it, go to the Stock Market and place a tax of 3% on all trades to fund the stipend. The market in 2016 did, according to the World Bank, over 42 trillion in trades and a 3% tax won’t break the bank. The payments should be set up so one gradually loses the stipend as they move up the economic ladder in a way that will encourage advancement, for example one would lose $100 of the stipend for every $10,000 in reported income so that when one is making $100,000 a year they lose the stipend entirely. A basic stipend would allow us to eliminate all those poverty programs conservatives always complain about. Currently we spend a trillion dollars on some 126 anti-poverty programs and their elimination would certainly offset the cost of the stipend.
Imagine the country with no one in abject poverty. Imagine the numbers of kids now being able to go to college because they have the financial support to do so. The economic force of all that spending would drive the economy to new heights and would certainly close the income gap between the rich and poor that is hurting our economy and country.
A basic stipend would free workers from starving or being held in economic servitude, making only enough to pay for enough food to be able to work another 40 hours. Business would have to bid for one’s labor instead of workers begging for a job! We can take back the dignity and value our labor should produce. We can boost the spending power of the poor and middle class and leave behind the failed and greedy policy of ‘trickle down’ economics which has damaged our economy and brought about the latest version of the Great Recession! Employers would benefit too. Not having to spend on unemployment or health insurance would save them money and allow them to pay better wages.
Yep, we can do this if we only have the will. We can make this country live up to the promises articulated by President Roosevelt in his famous ‘Four Freedoms” speech, Freedom of Speech, Freedom of Worship, Freedom from Fear and the last which always seems to be forgotten, Freedom from want! We have the power and wealth to accomplish the last of these. The mechanics are in place. The tools are available to us. Let us make a better country and thereby a better world by finishing the work set out for us by President Roosevelt some 76 years ago.
Democrats can win but not with the same old mid-center or center-left policies and platform. They must offer us an economy and a vision that really works for us all, brings us together and moves the Country and its people forward to a bright future that includes all our citizens!
...

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