Cashing in on cannabis: Tax it, but don’t get greedy

Leaves of medical marijuana.
Leaves of medical marijuana.

Who knew legalizing marijuana could be so complicated?

As Tribune reporter Monica Vaughan explains in her in-depth look at grows in the California Valley, local governments are wrestling with the number, size and types of cannabis businesses to permit, as well as where to allow them.

There’s also the matter of setting local fees and/or taxes—an issue the county Board of Supervisors will begin tackling on Tuesday.

The board faces a fundamental question: Should the county seek only to recoup its costs, or should it treat this as a money making opportunity—a chance to raise additional money for services like roads, parks and libraries?

At a minimum, citizens of San Luis Obispo County have every right to expect cannabis to pay its own way. In fact, they should demand it.

Fees and/or taxes must generate the additional $1.2 million the county expects to spend on regulating the cannabis industry.

Beyond that, we see nothing wrong with setting taxes high enough to raise a modest amount of additional revenue to provide a cushion in case cannabis expenses are higher than expected as well as for other services such as law enforcement, public health, roads and recreation. That’s only fair, since tax revenue was a huge carrot dangled in front of voters during the Proposition 64 campaign, and was no doubt a major factor that led to its passage.

But let’s not get greedy. It’s too much to expect a cannabis tax to be a panacea that will fix all of our potholes and build playgrounds in every neighborhood.

Keep in mind, the state already is charging a 15 percent excise tax on cannabis that’s expected to generate $1 billion per year. Add in local cannabis taxes—which would be passed on to consumers—and the 15 percent tax could more than double, and that could backfire.

If local taxes are too high, it could lead businesses to set up shop in other jurisdictions with lower tax rates. Those communities would then benefit from the jobs and spinoff revenue associated with opening new businesses.

High taxes also could encourage trading on the black market—which is exactly what Proposition 64 was attempting to stop.

On the flip side, charge too little, and cities and counties could find themselves dipping into their general funds to cover expenses—both anticipated and unanticipated—relating to the marijuana trade. That’s a burden no local government should have to shoulder.

So how much is enough?

We don’t have a magic number, but if the county does move ahead to put a tax on the June ballot—which we urge it to do—we recommend staying within range of other local jurisdictions.

Grover Beach—the only city in the county to have passed a tax so far—will charge $25 per square foot for the first 5,000 square feet of indoor grow, plus $10 per any additional square foot. Other marijuana businesses in Grover will be taxed based on their annual revenue—5 percent for medical marijuana-related businesses and 10 percent for recreational marijuana businesses.

That’s a starting point for discussion—and far more reasonable than the city of Santa Barbara, which has set its tax at up to 20 percent on gross receipts of all marijuana-related businesses. That crosses into gouging territory.

We also believe taxes should be levied on all cannabis-related businesses, including growers, manufacturers and retail sellers. That way, if cannabis is grown here but sold elsewhere the county can still collect tax revenue.

Finally, we urge writing the ballot measure with flexibility—make the tax up to a certain amount, for example—so the board can tweak it up or down (though realistically, taxes are hardly ever reduced).

Keep in mind, it’s we the voters who will have the final say on cannabis taxes. While city councils and boards of supervisors can impose fees on marijuana businesses, taxes must be put to a vote of the people.

So far, California voters have been overwhelmingly in favor of them. In the November election, 37 cities and counties—including Grover Beach—passed taxes or fees on cannabis, according to the Los Angeles Times. Only two said no.

That’s a strong statement of support for allowing local governments to benefit from legalization.