Oakland may cut cannabis industry tax
The Oakland City Council will vote Tuesday on an ordinance that would lower the current business tax rate by nearly half for big recreational cannabis enterprises and even more for smaller ventures.
The ordinance would amend the current business tax rate of 10% for recreational businesses in a “progressive fashion” on a tiered basis that takes into account the size of the project, said Councilman Dan Kalb, one of the bill’s authors.
“We have 5% for medical, but 10% for everything else and that is just kind of outdated ... given that it is all legal,” Kalb said.
According to the ordinance, smaller retail
businesses that make less than $500,000 per year would pay 0.12% tax on gross receipts. The same tax amount would be enforced for ventures of the same size in manufacturing, storage, packaging and cultivation.
Retail business that make $500,000 to $5 million would be taxed 3%. Manufacturing, storage, packing and cultivation ventures of that size would pay 2.5% in taxes.
Retail enterprises that make more than $5 million per year would have to pay a 5% tax. All other recreational businesses of the same size — manufacturing, storage, etc. — would pay a 4.5% tax.
The new tax rates would go into effect on Jan. 1, 2020.
“The idea is that a lot of these ... businesses are struggling and they need not to be burdened with higher taxes,” Kalb said. “A lot of these businesses that are very small, some of them at least are our equity businesses, we want them to succeed and it’s not easy and so the idea is to help them.”
Oakland’s cannabis equity program required at least half of all cannabis permits to go to equity applicants. Equity applicants must be city residents earning less than 80% of the average city income, live in a specified high-crime zone for at least 10 of the past 20 years, or have been convicted of a marijuana-related crime in Oakland after Nov. 5, 1996.
Lowering the tax rate would have a negative impact on the city’s general fund, Katano Kasaine, the city’s finance director, said in a report.
The proposed budget for 2019 to 2021 includes general purpose fund revenue of $15.07 million in the first year and $16.28 million in the second year from cannabis businesses. If the ordinance is implemented, the general purpose fund revenue would decrease to $5.99 million in the first year and $6.47 million in the second year, according to the report.
“We really do support this notion of changing the tax, but we want to be cost-neutral, we don’t want it to be so drastic,” Kasaine said at the Finance Committee on May 14. “That impact is real and it will be a substantial impact to our services.”
The report recommended that the council defer action on the ordinance. The recommendation echoed a statement by Sabrina Landreth, the city administrator, on May 2 when she presented Mayor Libby Schaaf ’s budget priorities to the City Council. Landreth told council members that the mayor recommended against cutting the business tax revenue.
But Kalb said the ordinance is necessary because it prevents losing cannabis businesses to neighboring cities by creating a “structure that is fair and competitive.” Cities such as San Francisco have a 5% tax on big businesses and 2.5% tax on smaller businesses.
The ordinance has wide-ranging support from local cannabis businesses. Raeven Duckett, the co-founder of Community Gardens, was one of dozens of people at the Finance Committee last week speaking in support of the ordinance. The committee unanimously passed the ordinance to be presented and considered by the council.
“What we are making right now is barely helping us cover all the expenses that we have currently in our dispensary service,” she said.
John Harlow, owner of Strange Lands, an equity-owned cultivation business in Oakland, said he favors the tiered tax system.
“We are currently looking at moving out of our equity spot and moving to another city, such as Richmond, to continue our cultivation business because it’s just not competitive here in regard to the tax rates,” he said.