75F - PH CANNABIS BUSINESS INTEGRATION

Home Browse Search

Ordinance Amendment No. 2019-01 — Commercial Cannabis Vertical and Horizontal Integration and Ordinance Updates June 4, 2019 Page 5 Gross Receipts Tax Rate Reduction for Cannabis Testing Laboratories Local jurisdiction tax rates on commercial cannabis testing laboratories vary across the state. When the City's commercial cannabis testing laboratory ordinance was adopted in March 2018, testing laboratory tax rates ranged from 2 to 10 percent in various jurisdictions statewide. The City currently collects a tax of 5 percent of gross receipts or $1.50 per gross square foot, whichever is the greater of the two calculations. Nearby, the City of Costa Mesa collects 6 percent; Long Beach collects 6 percent, with the option to increase to 8 percent; Bellflower collects 5 percent, (with multiple 2.5 percent annual increases scheduled beginning July 1, 2020 until a 10 percent cap is reached) and Irvine collects no taxes. It is important to note that beginning in 2015 the City of Irvine ceased collecting a business license tax for any type of business in the City. Cannabis testing laboratories play a crucial role in ensuring product safety for medicinal and adult - use consumers. Testing laboratories examine products for pesticides, minerals, potency, and toxicity. These facilities employ highly -skilled and educated individuals and require purchasing and installation of costly equipment. Although the City's current 5 percent tax rate is consistent with other local jurisdictions with the exception of Irvine, the City has a continuing interest in promoting safe medicinal and nonmedicinal cannabis and cannabis products for all users and to ensure the sustained growth of the regulated medicinal and commercial cannabis business hub in Santa Ana. Reducing the cannabis testing laboratory gross receipts rate from 5 to 2 percent will maintain Santa Ana's overall competitive edge in the medicinal and commercial cannabis industries by promoting a healthy mix of business types, employment opportunities, and equipment investment in Santa Ana's industrial areas. Recommendation There are currently 127 applications for commercial cannabis business start-ups pending with the Planning & Building Agency, each of which paid $1,690 to apply. For these businesses to move forward with their permitting and licensing processes they need assurance that the City will move forward in providing local tax treatment based on principles of vertical and horizontal integration and that issues related to security deposits and gross square footage assessment will be addressed. The medicinal and commercial cannabis ordinance updates recommended by staff provide this assurance and will serve to "jump-start" commercial cannabis business activity in the City, while at the same time accomplishing all other objectives of the City in securing reliable and continuing receipt of resulting cannabis revenues. ENVIRONMENTAL IMPACT There is no environmental impact associated with this action. In accordance with the California Environmental Quality Act (CEQA), the subject actions are exempt from further review pursuant to Section 15061(b)(3) of the CEQA Guidelines. 75F-5