Deep into the looong November ballot, many voters will be sorting through a typical mix of school bond measures, sales tax hikes and the like. But this year, in dozens of cities and counties, communities will also face pivotal questions about the future of California marijuana.
A campaign to legalize recreational cannabis statewide has dominated the political debate over weed this year. Less noticed, and in some respects more significant, is a proliferation of local ballot measures that will help determine whether, where and at what cost cannabis products will be available – regardless of the outcome of the state vote.
California’s cities and counties are the ultimate arbiters of whether pot businesses get to operate in their boundaries and how much to tax them. And that won’t change if the statewide recreational pot measure, Proposition 64, is approved in November, as some recent polls suggest is likely.
With that possibility looming, and acceptance of pot shops growing, officials and residents are pitching 62 local marijuana measures this November. That’s nearly 1 in 10 of the 687 state and local measures appearing on California ballots. And a third of those involve Los Angeles, Orange, Riverside, San Bernardino and San Diego counties.
Some of the proposed policies diverge sharply, even between neighboring cities, according to county election reports. With no accepted regimen of best practices and few long-range case studies for the rapidly emerging industry to examine, officials are experimenting with proposed regulations and tax rates that can fluctuate by more than 17 percentage points.
The outcome of the local measures, experts say, will determine not just whether residents will be able to buy marijuana in their own cities, but also whether legalization hurts or helps the black market.
“If Prop. 64 passes and every city says we’re not going to allow recreational marijuana, then it’s a Pyrrhic victory,” said Aaron Herzberg, an attorney with CalCann Holdings in Costa Mesa, a firm that operates dispensaries and offers input to cities as they craft their policies. “The local measures are critical.”
PATCHWORK OF PROPOSALS
Should cities welcome marijuana dispensaries but not farms, or vice versa? Should their fees be fixed or increase over time? Should they tax marijuana patients less than those who just want to get high? Would that encourage continued abuse of the medical system?
These are some of the questions voters in 25 California counties and 46 cities will face Nov. 8.
Roughly a third of the local measures began as voter petition drives, including initiatives in Upland, La Mesa and Catalina Island’s Avalon.
The remainder were placed on the ballot by city councils or county boards of supervisors – some of whom welcome marijuana businesses and others who said they felt forced to propose regulations either because legalization seems inevitable or to compete with citizen measures that had already made the ballot.
That’s the case in Costa Mesa. One citizen-backed measure would allow up to eight dispensaries, while another would permit four. City leaders are proposing a third option that would allow testing labs and sites for making marijuana-infused products, but no shops.
In Long Beach, a measure placed on the ballot after a voter petition drive would tax marijuana businesses at 6 percent. The city is pushing a plan that would instead tax medical dispensaries at 6 percent to 8 percent, recreational shops at 8 percent to 12 percent and cultivation at $12 to $15 per square foot.
Laguna Beach city leaders don’t like a ballot initiative that would allow two dispensaries in town without taxing them. But rather than pitch a competing measure, City Council members opted to campaign against the ballot measure.
Just one local measure is proposing a ban: Measure B in Sierra County, which would specifically outlaw commercial cultivation.
But cities and counties don’t have to ask permission to permit or block marijuana businesses. San Bernardino County supervisors in August banned cultivation and sales in unincorporated areas, while Lynwood City Council members on Tuesday passed the first ordinance in Los Angeles County permitting commercial weed grows.
Local governments do need voter approval to tax cannabis, and more than half the local measures call for an added community levy on sales. The proposed tax rates range from 2.5 percent for medical users in unincorporated Mendocino County to 20 percent in Santa Barbara.
Another 20 measures call for local taxes on growing marijuana.
The contrasts arise sharply in the Inland Empire, where San Jacinto city leaders are calling for the highest cultivation tax in the state: up to $50 per square foot. An initiative in nearby San Bernardino would tax marijuana farms at one-tenth that rate.
Some local measures would permit only medical businesses. Others would allow for recreational shops if Prop. 64 passes.
A similar mishmash of policies exists in Colorado, which legalized marijuana in 2012. There are cities such as Vail that have rejected all cannabis businesses, while Denver and other cities have welcomed the boom.
Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, said such hyper-local regulatory schemes mirror how cities and counties control the location, number and operation of liquor stores, bars and other businesses selling alcohol.
“That patchwork system, in many ways, is based on cultural and local mores,” he said. “And I think that’s ultimately what the public wants.”
Officials estimate local marijuana taxes on the November ballot would bring in $100,000 to $22 million a year to various city or county budgets.
The majority of that revenue would flow to general funds for public safety and other basic services. A few measures would dedicate revenue to specific purposes, such as reducing sewer charges in Colfax or supporting public art in San Leandro – an approach some critics say should require 66 percent voter approval.
Taxing marijuana businesses helps legitimize an industry that’s long operated in the shadows, Herzberg said. And he said business owners who are serious about moving to a regulated system support providing revenue to cities that welcome them.
The danger, experts warn, is layering too much cumulative tax on legitimate businesses, and giving street dealers and cartels the upper hand in the competition for customers.
“Revenue is important, but so is getting people to stop buying on the black market,” said Joseph Henchman, an analyst for the Washington, D.C., think tank Tax Foundation.
After studying marijuana taxing policies across the country, Henchman said the magic number seems to be about 25 percent. Any higher – such as the 37 percent imposed in Washington state or 29 percent in Colorado – and the black market still seems to thrive, he said.
California medical marijuana businesses now face state sales tax rates that average around 8 percent.
Prop. 64 would tax sales an additional 15 percent plus add a tax by weight for cultivation, though it would exempt medical users from state sales tax. That puts California in the sweet spot of a roughly 23 percent cumulative state tax, which Henchman said could make it the first state to significantly curtail the black market. But that assumes local governments don’t pile on too many additional taxes.
At least 18 cities, including Santa Ana, already have local medical marijuana taxes of 5 percent to 15 percent, according to a report by CalCann Holdings.
“Cities are free to experiment and maybe ultimately compete with one another,” Herzberg said. “My only caution is that every level of government is trying to get their piece out of marijuana, and they’re not leaving much for the industry.”
For some cities, that seems to be the idea.
San Jacinto council members made it clear they’re using the hefty tax measures, in part, to keep their city from becoming a mecca for the booming pot industry.
“You don’t want it to be ridiculous,” Councilman John Gagnepain said. But, he added, “We want to make it high enough to make a point.”
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