HomeMy WebLinkAbout5/15/2018 Item 16, Hermann
City of San Luis Obispo, Council Memorandum
DATE: May 15, 2018
TO: City Council
FROM: Greg Hermann, Interim Deputy City Manager
VIA: Derek Johnson, City Manager DJ
SUBJECT: May 15, 2018 Agenda Correspondence Item 18
Staff has identified some minor changes and additional clarification for the report, draft
resolution and draft ordinance regarding a cannabis business tax.
1. On Packet Page 426, the draft ballot language should be modified as stated below.
This modification clarifies canopy square foot for cultivation and incorporates
specific ballot language that allows the City Council to increase the amount annually,
by inflation. This modification still meets the 75-word limit.
Shall the measure to maintain and improve essential City services, including without
limitation: public safety; senior, youth and park services; and programs to retain and
attract businesses and address homelessness, by imposing a cannabis business tax at
yearly rates up to 10% of gross receipts for retail and businesses and up to $10.00
per canopy square foot for cultivation (adjustable annually for inflation), raising
approximately $1,500,000 annually, until ended by voters, with all funds used locally,
be adopted?”
2. On Packet Page 430, Section 5. Approval. The reference to Article XIII A of the
Constitution should reference Article XIII B.
Section 5. Approval. Pursuant to Section 2(b) of Article XIII A B of the Constitution,
this measure requires approval by a majority of those casting ballots on the measure.
3. On Packet Page 433, Section 5.10.04, Definitions, B. This clarifies that hemp
products, defined as not having more than .3% of tetrahydrocannabinol (THC), is not
considered a cannabis product and not subject to the proposed cannabis business tax.
“Cannabis” also means cannabis as defined by Section 11018.5 of the California
Health and Safety Code, by Section 26001, subdivision (f) of the Business and
Professions Code, and by other State law.
Initial Cumulative Cannabis Taxes
CategoryMax Cap AmountIncreaseCumulative Price
Producer Price$1,000 $1,000 $1,000
State Cultivation Tax$9.25/oz$148 $1,148
Local Cultivation Tax 2.50%$25 $1,173
Batch Testing$50/lb, + 0.50%$55 $1,228
Wholesale Price w/ Taxes$1,228
Total Tax at Wholesale$228
Council Agenda Correspondence for 5/15/18, Item 18 Page 2
Tax as %22.80%
Manufacturer Markup20.00%$246 $1,474
Local Tax2.50%$37 $1,510
Total Manufacturer Price$1,510
4. For clarification, the following table provides an example of the initial, cumulative
Total Taxes at Manufacturer$265
Total Tax as %17.53%
cannabis taxes. Specifically, the table shows the combination of the adopted State
Distributor Markup30.00%$453 $1,964
cannabis taxes and the City’s proposed initial cannabis taxes for cultivation,
Local Tax2.00%$39 $2,003
Total Distributor Price$2,003
Total Taxes at Distributor$304
manufacturing, distribution and retail.
Total Tax as %15.18%
Retailer Markup100.00%$2,003 $4,006
Local Tax6.00%$240 $4,246
State Excise Tax15.00%$601 $4,847
Total Retailer Price$4,847
Total Taxes at Retail$1,145
Total Tax as %23.63%
CA Sales Tax (non-medical)6.25%$303$5,150
Local Sales Tax1.50%$73$5,223
Total Taxes at Retail
$1,521
Total Tax as %
29.12%
Total Local Tax7.93%$414.16
Council Agenda Correspondence for 5/15/18, Item 18 Page 3
5. For clarification, the following compares the proposed cannabis business tax to the
City’s existing Business Tax Certification rate:
a. The City’s existing Business Tax Certification rate (MC. 3.01.202) is fifty
cents per thousand dollars of gross receipts, or .05%, for all business types in
the City for which business tax may lawfully apply. The proposed initial
cannabis business tax ranges from 1% for operation of a testing laboratory to
6% for retail sales. Cannabis businesses would only pay the appropriate
cannabis business tax. They would be exempt from paying the City’s existing
Business Tax Certification rate.
b. Due to the nature of the cannabis business and how it differs from other
businesses, Prop. 64 (the California Marijuana Legalization Initiative)
recognizes and allows cities and counties, if approved by the voters, to impose
cannabis business taxes. Given that, the State, along with many cities and
counties, have imposed their own cannabis business tax to collect revenue for
their agencies.