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Santa Maria Sun / News

The following article was posted on May 16th, 2018, in the Santa Maria Sun - Volume 19, Issue 11 [ Submit a Story ]
The following articles were printed from Santa Maria Sun [santamariasun.com] - Volume 19, Issue 11

Santa Barbara County governments push forward despite less than expected pot tax haul

By SPENCER COLE

For the time being, Santa Barbara County and its cities are reacting with tepid optimism to the news that California will not lower its 15 percent excise tax on cannabis.

"It's actually not surprising to me that the revenues are fairly low at this point," Santa Barbara County Deputy CEO Dennis Bozanich said, adding that he believed other jurisdictions across the state that were not in compliance with regulations were most likely contributing to the low numbers. "I think frankly our county has done a good job providing a pathway for the industry to become permitted and licensed in compliance with state regulations, all of which is going to make them a part of tax revenues and contributing to those revenues."

Santa Barbara County is expected to contribute sizable chunks in collected taxes as California rolls out its newly legalized industry. As of the Sun's press time, the county led the state in issued cultivation licenses with well over 800. The number has climbed steadily over the past few months, according to data from the state's Bureau of Cannabis Control.

California is expected to rake in revenue from the county in the form of the excise tax along with a $9.25 per ounce dry weight tax on flowers, and a $2.75 per ounce on dry weight leaves. There's also an additional 7.75 percent in local sales taxes (6 percent state, 1 percent local, a half percent to public safety, and a quarter of a percent to the county).

In the county itself, voters will decide in the June 5 primary election whether to place additional taxes on the crop in unincorporated areas, which would all be on gross receipts: 6 percent on retail dispensaries, 4 percent on cultivation, 3 percent to manufacturers, 1  percent to nurseries and distributors, and 8 percent on micro businesses.

Bozanich said the county arrived at those tax rates after learning that any cumulative rate that came to more than 30 percent risked pushing prospective business owners out of the mainstream and in to the black market.

"This is where tax rates become consequential because those margins become razor thin," he said, adding that the next three to five years would be highly competitive for cannabis operators and that the industry in its early phases would see a high attrition rate as bigger, sounder businesses gobble up smaller, less efficient competition. "The differential tax rates become a little bit more impactful in where you site your business or where you cultivate."

In some jurisdictions, however, the cumulative rate of state, county, and local taxes can come out to as high as 45 percent, according to a September 2017 report from the Fitch credit rating agency.

"California's high taxes are likely to keep black market prices competitive into the long term," the report says, adding that the state's black market would also benefit from "its long history as a supplier to states where nonmedical cannabis remains illegal."

Fast forward eight months, and the initial numbers from California's cannabis tax collections are far from encouraging.

Between Jan. 1 and April 1 of this year, the state collected some $34 million in state excise taxes on cannabis, far below projected estimates forecasted by the governor's office before the taxes went into effect. Even if doubled, the current revenues would still be considerably off from the $175 million budgeted for the first six months of the year, according to the Legislative Analyst's Office.

"We're not seeing the numbers" Assemblyman Evan Low (D-Campbell) told the LA Times. Low is the chairman of the Assembly Business Professions Committee. The news comes as the Legislature was preparing to pass a bill that would have reduced the state excise tax on marijuana from 15 percent to 11 percent.

On May 8, state officials warned that the proposed bill would most likely be shelved.

It was a move Bozanich called into question.

"I'm a little bit of a contrarian on this but I think when you lower excise taxes such as the state's your collection actually goes up," he told the Sun. "Lowering the rates overall will help keep the cumulative below 30 percent total, and if the state were to do that, people are going to go to the legal market instead of the illegal [black] market."

Stradling that 30 percent line is important not just to Santa Barbara County officials. In fact, one of its cities has attempted to do just that, but on an extreme unheard of in most parts of California.

In March, the Lompoc City Council shot down a proposed ordinance that would have introduced a tax on commercial pot for the June primary ballot. The reasoning at the time from the majority against the ordinance was that allowing the industry to set up shop in the city's relatively tax-free zone would pay far larger dividends than any tax could.

"This isn't a get-rich quick scheme here," Councilmember Dirk Starbuck said during the March 20 meeting after voting against the ordinance. Jim Mosby, another councilmember who joined Starbuck, said the economic benefit that could be obtained from taxes would be "far outweighed by filling up vacant buildings and bringing jobs to this town that we desperately need."

The ordinance's author, Councilmember Jenelle Osborne, called the move to not ask Lompoc's voters to consider a tax "irresponsible." She cited the city's independent consultant, SCI, which told councilmembers that Lompoc could rake in anywhere from $700,000 to $3 million in annual revenue from a cannabis tax.

Then, on May 1, following a lengthy closed session, Osborne used her final remarks that evening to bring forth a motion to again consider a tax on cannabis, this time for the Nov. 6 election. The proposed ordinance would bring a 6 percent sales tax, with 3 percent on manufacturing and cultivation, a 1 percent tax on distribution and nurseries, as well as a 6 percent cap on micro businesses. The sales tax would be introduced as a 2 percent tax the first year, which would then increase each year until it reached 6 percent. Mayor Bob Lingl and Councilmember Victor Vega voted in favor of the motion, and the item was placed on the council's agenda for its May 15 meeting.

Joe Garcia, a prominent marijuana advocate and president of the Lompoc Valley Cannabis Coalition, said that while he took issue with some of the proposed taxes, he and the city's industry in general were not against paying them. Garcia told the Sun he was planning on introducing a 5 percent tax on just retail sales for cannabis within city limits that he hoped would go into effect immediately or after November's election.

"I think they should just explore that for a few years and let the industry become what it is going to become," he added. "If you have baby plants growing and douse them with fertilizer, you will kill those plants, and it's the same way with taxes.

"We're talking businesses that are spending hundreds of thousands of dollars to become legal and online and open their doors, and the first thing we are going to do is tax the shit out of them? That is the stupidest thing that could possibly happen." 

Staff Writer Spencer Cole can be reached at scole@santamariasun.com.




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