La Mesa looking at taxing marijuana businesses

La Mesa voters will have the opportunity to decide whether the city should tax the marijuana businesses that are setting up shop there.

The City Council last week voted to put a proposed cannabis business tax on the November ballot that it hopes will generate up to $2 million every year.

Earlier this year, the City Council formed a subcommittee headed by Mayor Mark Arapostathis and Councilman Bill Baber to discuss how the city could potentially make money from coming marijuana businesses.

“Why are we here?” Baber asked last week. “In 2016, Proposition U passed and made it legal, but we’ve had no tax element with it.”

In November, voters will consider allowing the city to tax businesses that cultivate marijuana a minimum of $7 per square foot of growing space, and not more than $10 per square foot of the area. Voters will also decide if the city can ask for a maximum of 6 percent of the gross receipts from those marijuana businesses selling products. The city would collect the taxes quarterly.

Gross receipts would not include sales from people buying cannabis products with a San Diego County-issued California Department of Public Health Medical Marijuana Identification Card.

Aware of the black market for marijuana, La Mesa plans to keep the amount of taxation on businesses low, in hopes of ensuring that legal marijuana businesses will outsell those who offer cannabis by illicit means.

The money raised from the tax would help offset the city’s expenses for additional public safety, public works and code enforcement workers related to marijuana businesses as well as fund other general municipal expenses.

The state has already levied a sales tax on marijuana. Since Jan. 1, a 15 percent excise tax has been imposed on those who purchase cannabis and cannabis products. Retailers are required to collect the excise tax from the purchaser and pay it to the cannabis distributor.

Commercial growers of cannabis are required to pay a cultivation tax to either a distributor or a manufacturer — depending upon the nature of their transaction. State cultivation tax rates are $9.25 per dry-weight ounce of cannabis flowers, and $2.75 per dry-weight ounce of cannabis leaves.

Voters in La Mesa in 2016 approved Proposition 64, a statewide initiative that gave local governments an option to allow retail sales, cultivation and manufacturing of recreational marijuana. La Mesa residents that same year approved Prop. U, which allowed medical cannabis businesses in the city. That includes retail sales, cultivation, manufacturing and testing of the product.

Cultivation means businesses can grow marijuana on site; manufacturing is related to the gleaning of THC and creating products; testing involves laboratories seeking the extraction of residual solvents like ethanol and carbon monoxide, physical and microbial contamination, potency, and measuring flavor and fragrance.

The city currently has one medical marijuana retail shop that is ready to open on Center Street, but other stores are coming. La Mesa also has five cultivation conditional use permit applications being considered and seven manufacturing permit applications currently being processed.

City Councilwoman Kristine Alessio said that if voters OK the business tax that marijuana retailers will have a choice on whether to pass the additional taxes they will be paying onto the consumer or whether to absorb the fees as a regular business cost.

Sean McDermott, who will be opening the first La Mesa cannabis storefront this month on Center Street, voiced concern to the City Council about the different type of ID cards that are used by medical marijuana patients. McDermott explained that the county-issued state cards are difficult to obtain and he said the cards are expensive, running more than $200 annually.

Businesses selling cannabis throughout the state cannot charge sales tax to those who have the official California medical marijuana ID card. About 400 people in San Diego County have been issued the state medical card; 6,000 are estimated to have the card in California.

If the ordinance is passed, the city won’t be able to tax products sold to people who have the ID card; it will be able to charge 4 percent for all others.

Cynara Velasquez, who authored Prop. U, said she was in favor of the business tax, but that she hoped the city would lower the minimum amount of square footage costs to businesses to $4 from $7.

The City Council also started discussing allowing businesses to open that offer recreational marijuana or “adult use” of cannabis.