As Sonoma moves forward in licensing two commercial cannabis dispensaries in town, the City Council on June 1 eyed the potential tax revenues the new businesses would bring.
But to set a new tax requires city voters pass a ballot measure with two-thirds approval — and the council at its Monday virtual meeting considered the details of a measure expected to appear on the November ballot. The council’s vote to approve the measure for the ballot also required super-majority of four councilmembers.
Sonoma Planning Director David Storer presented to the council a proposal for a business tax structure that caps out at 4 percent, which should provide the city with about $200,000 a year in revenue. The revenue would go into the general fund, where it would provide “unrestricted” support for programs like streets, police and fire, and other city services, according to city staff.
Two councilmembers, Madolyn Agrimonti and David Cook, expressed interest in a higher ceiling of 6 percent, which potentially could bring in $300,000 a year. Whatever the tax ceiling turns out to be, the rate could initially be set lower by the council, then raised if and when the revenue becomes needed.
“I think 6 percent is reasonable,” said Agrimonti. “Ten percent, I think (consumers) would go to other cities.”
But the 6 percent figure faced pushback from the other council members.
Councilmember Amy Harrington said that the industry feedback has been that “over-taxation is killing the industry.”
“Just like we super carefully evaluate raising the hotel tax, because those are important businesses in our community, I think the same level of scrutiny should be applied here,” said Harrington.
Rachel Hundley agreed, saying “it’s going to be a crowded ballot that this is on.”
David McPherson, of cannabis-consulting firm HDL, said the “tolerance level” of the industry has changed. Before 2018, there was not a 25 percent accumulated state tax, he said, so city taxes of 7 to 10 percent seemed acceptable.
“Retail, the tolerance level has been 4 to 6 percent. Most cities that had a higher rate of 7 to 10 have brought their taxes down,” he said, estimating that 75 percent of cities in California have the lower range.
Hundley said the purpose of allowing legal dispensaries wasn’t primarily for tax revenues.
“The reason we moved forward on this wasn’t because we saw it as some sort of cash cow,” said Hundley. “It was because we thought there should be a legal business here.”
Harrington was particularly forceful in pointing out the different way the city was tackling cannabis tax than comparable hotel taxes — which the city has been careful to keep in step with nearby cities in order to protect businesses and jobs in town.
“It makes sense to have a uniform policy on setting taxes on businesses,” she said. “There’s no reason why we would create a special system just for this one type of business.”
After discussion Agrimonti “folded” – visibly, in her Zoom window, folding a piece of paper – and backed the 4 percent tax rate to ensure the tax initiative would appear on the ballot.
The measure, as presented by Storer, included different tax rates for different businesses – cultivation, manufacturing and retail would all be taxed at 4 percent, while distribution would be taxed at 3 percent and testing labs at 2 percent.
The resolution passed unanimously.
In addition to the cannabis-tax measure, the City of Sonoma ballot will also include the Local Access Initiative, a signature-driven initiative that qualified for the ballot in mid-2018 and comes before voters this November.
The Sonoma Citizens for Local Access initiative would permit multiple cannabis businesses in the city’s commercial zones, without a use permit or regulatory fees – unlike many of the other uses currently allowed in commercial zones, which require a use permit.
If passed, the Local Access Initiative would supersede the city’s current cannabis ordinance which allows only two commercial cannabis business licenses, one for a storefront dispensary and one for a delivery-only dispensary.
Sonoma Valley resident Jon Early, who led the signature drive that qualified the Local Access Initiative for the ballot, could pull the petition from the ballot but would have to do so by the 88th day prior to the Nov. 3 election – which is Aug. 6.
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