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Long Beach Cannabis Taxes May Remain Dormant
Without Council Regulation Or Statewide Legalization

By Tiffany L. Rider - Editor

January 21, 2014 – Without lifting the city’s ban on dispensaries, the medical marijuana tax initiative headed for the April 2014 General Election ballot may end up like the city’s recreational marijuana tax – moot.

The Long Beach City Council approved adding a measure to the upcoming general election that, if passed, would impose a 6 percent business license tax on collectives that sell medical marijuana within city limits. The tax would increase annually based on the consumer price index with a cap of 10 percent. It also includes a $15 per square foot tax on cultivation sites that would supply medical cannabis dispensaries.

Deputy City Attorney Kendra Carney confirmed that the city’s current ban on dispensaries, enacted in 2012, would prevent the city from collecting any tax from such operations. If the medical marijuana tax measure is approved, she said, and “should the council pass regulations allowing dispensaries, they are prepared for it.”

In 2010, Long Beach voters overwhelmingly approved Measure B, a 15 percent tax on businesses that sell recreational marijuana and a $25 per square foot tax on cultivation sites in town. The tax became moot when statewide Proposition 19 – the Regulate, Control and Tax Cannabis Act of 2010 – was defeated.

Typically, businesses pay a business license fee and a state business tax, a portion of which is returned from the state to the local government, according to City Budget Manager Dennis Strachota. A business license tax is based on a base tax and an employee fee. The base tax for most businesses in Long Beach is $337 per year, plus $8.76 to $17.52 per employee depending on the type of business.

The proposed medical marijuana tax, however, is based on gross receipts, Strachota said. “The only business we tax on a gross receipts basis right now are vending machines operations,” he said. “There is a rate per $1,000 gross receipts in that case. Right now it’s $4.93 per $1,000.”

The flat rate per square foot for cultivation sites is a fairly unique tax for Long Beach, Strachota said, but is comparable to a unit of tax that has been used by a number of other jurisdictions that actually allow cultivation. “The city would obviously have to approve a regulatory ordinance if [the tax] was adopted, should they choose to do that,” he said.

From Long Beach Collective Association Adam Hijazi’s point of view, the fact that the city council is putting a medical marijuana tax measure on the ballot helps legitimize medicinal cannabis as something that’s needed. “We’re not against it,” he told the Business Journal. “When we circulated our ballot initiative, which 43,000 voters signed, we were asking for a tax as part of regulation. We are happy that the question is going to the people.”

Hijazi said he considers the city’s dormant 15 percent tax on recreational marijuana too high, but that a 6 percent tax is fair for collectives. “We obviously want to be taxed,” he said, “and we want these tax funds to go to whatever the city needs – parks, fire [department needs] or other areas. At the same time, it’s important to not tax collectives out of business.”

What is not effective, Hijazi said, is the square footage tax on grow operations. “In all reality, cultivation sites are not guaranteed,” he said. “You can plant 20 of them, but sometimes they die. Sometimes all of them die. You can have a pest that can kill your entire crop. If you have a bad crop, then you’re going to get taxed for something that was never produced. That can be a further setback.”

Other cities attempting to regulate and tax marijuana operations have stumbled down similar paths. When Long Beach approved a tax on recreational marijuana in 2010, the City of San Jose approved Measure U, allowing the city to charge a 7 percent tax on all marijuana businesses. Voters approved hiking that tax to 10 percent last year.

According to City of San Jose Director of Communications David Vossbrink, the city council there approved an ordinance restricting the number of operations in town. A referendum was started to repeal that ordinance, and so the council repealed it rather than having an election, Vossbrink said.

“What we’re doing now is developing an ordinance since the California Supreme Court did rule that cities can regulate or ban dispensaries through land use processes,” he said. “Our city council did ask us to bring back framework with that consideration by March. We will address hours of operation, offsite cultivation, relationship with other businesses, marketing to minors, prohibition of on-site consumption, where they are located, proximity to sensitive areas and existing homes, and other areas.”

To complicate things further, Vossbrink said he recently learned that some marijuana dispensaries in San Jose have prepared their own ordinance and are distributing it around as a petition to get it on the ballot in November.

These efforts to regulate and profit from cannabis are part of a shifting view of the plant and its stereotypical users. With Colorado and Washington seeing millions of dollars being spent in the states’ budding marijuana business, other states are watching closely to see if it’s worth cashing in. California is among the more proactive states on this issue: proponents of cannabis legalization are pushing for a spot on the November ballot.