The San Luis Obispo County Board of Supervisors has agreed to back a 4 percent sales tax on gross receipts from marijuana businesses that will increase 2 percent every year to a maximum of 10 percent — a plan residents will vote on in June.
How much cash that could generate for the county depends on a few basic things: the number of businesses the county permits, how productive those businesses are and the price of weed.
While the county has never done an economic impact study on the local potential of the cannabis industry, a consultant for County Tax Collector Jim Erb crunched some numbers and estimated that revenue from a 4 percent tax could range from $1.4 million to $28 million.
That’s a big range for the potential “Erb” tax.
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In reality, he said, the first year of taxed cannabis will likely generate about $1.4 million in revenue to the county.
$1.4 million Tax revenue Tax-Collect Jim Erb expects to collect the first year
“And this assumes everybody is reporting accurately. It’s going to take awhile to get there. It’s not going to be an overnight thing,” Erb said.
What will the county do with cannabis tax revenues?
Supervisors agreed in July that they did not want the county to profit from cannabis, but rather to set a tax that would cover the costs of the consequences of the legalization of marijuana, such as regulation.
Erb estimates those consequences include expected and unexpected increases to services in code enforcement, public and mental health services, law enforcement, and drug and alcohol services, among other things.
The board supports a general tax that only needs the support of a simple majority of voters to pass. If approved, the money raised could be spent on whatever the board decides.
How will taxes affect price?
The price of cannabis already increased with regulation. Local medical cannabis distributors told The Tribune they’ve seen wholesale prices of products double in some instances since the legal state market began Jan. 1. That’s in part because of high state taxes that include a 15 percent excise tax.
Erb’s office estimates that $109 in taxes could be generated by a $300 ounce of cannabis. That includes the state excise tax, state dry weight tax, state and local sales tax, and the taxes assessed on businesses in the supply chain, including the cultivator, distributor and dispensary. Of the $109 in taxes, about $76 would go to the state and $33 would go to the county.
What businesses will be taxed?
No brick-and-mortar retail shops are allowed in unincorporated areas of the county. So the cannabis businesses that will generate taxable sales are cultivation operations, manufacturing facilities and dispensaries, which San Luis Obispo County has limited to deliveries only of products that have been grown or manufactured on-site — a model Supervisor John Peschong calls “farm-to-table.”
The Tax Collector’s Office also argues that businesses based in other counties that deliver product to customers in this county should pay taxes for those sales, because “if it’s used here, we imagine it will have an impact here,” said Justin Cooley, principal financial analyst for the county.
The county tax would be applied equally to medical and non-medical cannabis businesses.
What would it take to get to $28 million?
On the high end, revenues anywhere near $28 million would depend on a strong wholesale price for product, between $1,200 and $1,300 per pound, and productive farmers able to grow high-yield crops.
It would also require all 141 cultivators that the county has allowed to apply for a permit to receive one.
That’s not likely to happen, in large part because only a fraction of outdoor cannabis growers in the county — 32 of 141 in the queue — are farming on land that meets the county’s new land-use requirements. The others will have to move their operations to new properties to have a chance at a permit.
If demand is high and plants are stacked with buds, the county could see revenues as high as $6.9 million even with only 32 cultivators permitted, according to the county consultant.