55D - RESO COMMERCIAL CANNABIS LICENSE TAX

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Proposed Commercial Cannabis Business Taxation Ballot Measure for Public Consideration on the November 2018 Ballot July 3, 2018 Page 4 Direction to Pursue a Ballot Measure for Cannabis Uses Following the adoption of the ordinances to regulate Adult Use and Commercial Cannabis, the City Council directed staff to prepare a ballot measure for consideration by the voters to tax the newly allowed uses for the November 6, 2018 ballot. Due to the timing with the passage of Prop 64 and SB 94, there was insufficient time to prepare a ballot measure for adoption by the voters at a primary or general election. Thus, staff recommended that in the interim, any cannabis operators that choose to begin business operations would be required to enter into an Operating Agreement with the City. The Operating Agreement provided for implementation of a community benefits programs, outlined operating requirements, and provided a mechanism to collect fees. Proposed Tax and Structure When Measure BB was approved by the voters, a gross receipts business license tax was assessed on dispensaries that were permitted to operate in the City. This structure was utilized as the sale of medical marijuana could be captured through the receipt of sale, similar to other type retail uses. To date there are 19 medical marijuana operators in the City. Most opened during calendar years 2016 and 2017, as operator tenant improvements took longer than anticipated. This delay resulted in reduced tax revenue and original revenue projections had to be adjusted. Staff is recommending new adult use and commercial cannabis, create a base rate utilizing square footage or a gross receipts rate; with only the higher of the two being collected. This will ensure that licenses that are issued will generate a minimum revenue for the City. Additionally, by establishing a base rate for the retail type uses, it encourage operators to begin utilizing a license and delaying their operation from opening. Every cannabis business, excepting a qualified "nonprofit organization," shall pay a separate business license tax at a rate of up to ten (10) percent of the gross receipts generated or otherwise received for each branch establishment or separate property location of the business or a rate of up to $35.00 per gross square foot for each branch establishment or separate property location of the business, whichever is greater. The gross receipts/gross square footage tax shall be initially set based on cannabis business activity at the rates set forth below: Commercial Cannabis Business Activity Gross Receipts Gross Square Rate Footage Rate Adult -use Cannabis Retail Business 8% $ 25.00 Cultivation 6% $ 10.00 55D-4