Six Things You Need to Know About Ojai’s New Cannabis Tax

We wanted to help our Ojai patrons better understand what’s going on in light of the recent passage of Measure G in Ojai. Voters approved Measure G in Ojai by 69.2% of the vote. The text presented on the ballot was “Shall the measure approving an immediate 3% tax on cannabis businesses, which will potentially add $465,000-$1,550,000 annually to fund general city services, and approving authority for the City of Ojai to increase the tax on cannabis businesses up to 10% of gross receipts in the future, until the voters decide otherwise, be adopted?”

Sadly, this ballot text was brief to the point of being somewhat deceiving, as it doesn’t present the full picture. Adding to the confusion, we are disappointed that the Ojai Valley News has opted to publish several one-sided opinion pieces in favor of the tax that don’t present readers with the complete set of facts either. So we aim to illuminate a few of the finer points of this tax issue here.

Since the December 8 Ojai City Council Meeting has been postponed until Dec 15 due to the local power outages, you have additional time to digest this and consider whether you, as a resident of Ojai, support keeping this tax at 3%, or whether you support Council potentially decreasing it, as the voters have actually already delegated them the authority to do so — although that might not have been apparent to you unless you read the full text of the ordinance or were following the early discussions at city council meetings.

#1: The Full Ordinance Grants Council The Discretion To Adjust the Rate Anytime. If you read the full text of the ordinance, voters have given Council the authority to adjust the rate anywhere between zero and 10%, with an initial rate set at 3%. Council crafted the ordinance with the specific intent of having the discretion to adjust the rate as needed to account for changes in economic or industry conditions, changes in the budgetary needs of the city, or changes in the way they taxed different sectors of the industry (retail vs. manufacturing, etc.)

“Once approved, the City Council would have the power to implement a lower tax rate than the maximum rate of ten percent and/or establish differing tax rates for each of different categories of cannabis business activities. The City Council has set the initial rates by resolution at three percent for the four cannabis business types: retail and delivery sales, distribution, manufacturing, and testing laboratories. The Council can change this initial tax rate at any time, by resolution, within the ten percent maximum for which voter approval will be sought.”

#2: Most Medical Patients Would Not Be Exempt
Only “qualified” medical patients are exempt; this means you must have both a doctor’s recommendation and the card issued by the county health department that costs an extra $100/year to be exempt from this tax. Less than .5% of our customers have this MMID card. If you have just a doctor’s recommendation, or take cannabis to treat medical issues without actually getting your physician’s written blessing, you are not currently exempt from this tax.

#3: Gross Receipts Tax is different from a Sales Tax
As one reader recently wrote us, “I must admit I interpreted the [Measure G] tax as a sales tax…”

A sales tax is a tax on the consumer but collected by the retailer on behalf of the taxing agency. ​​Dispensaries don’t pay income tax on the sales tax we collect because sales tax is not treated as a business expense but rather a tax liability.

Measure G is a gross receipts tax which is levied directly on the business and treated as a business expense instead of a tax liability. Dispensaries pay federal income tax on any added gross receipts tax we pass on to the consumer, effectively compounding taxes on taxes. This is why a gross receipts of 3% actually leads us to a 10% price increase to make up for the loss of revenue we will face.

#4: You Think Dispensaries Are Getting Rich But We’re Not. Cannabis is Taxed at Obscene Rates Already
Due to an IRS rule called 280e, cannabis businesses cannot deduct business expenses as normal deductions until Congress takes cannabis off the list of Controlled Substances as a Schedule 1 drug. The effective federal tax liability is currently 60-70% or higher of a dispensary’s pre-tax earnings. You can see a basic breakdown of the math laid out by Councilmember Weirick here. It’s a common fallacy to think that dispensaries are making big profits given most people aren’t aware of this tax rule. Don’t forget — we still aren’t able to open regular business banking accounts. We pay twice as much per square foot in rent because we sell cannabis. The costs of compliance are punishing, yet no matter what hoops we jump through we are relegated to the industrial park area, lest we sully the pristine view of Ojai Avenue with our wretched storefront presence.

#5: Excessive Taxation Pushes Consumers Away — Leading to Lower Revenues for the City
This is well-documented but seems to be largely ignored by those with dollar signs in their eyes thinking that dispensaries will cure all the city’s fiscal woes. A 10% price increase isn’t trivial when so many people are out of work and struggling to get by. With too much lost revenue we will either be forced to increase prices even more, or to make staffing cuts and eliminate discounts for senior citizens, veterans, and those with financial need and chronic or terminal illnesses.

#6 Comparing Ojai’s Tax to Port Hueneme or Santa Barbara is Like Comparing Apples to Oranges
Among all the other cities who collect a gross receipts tax, only Ojai bars chain stores and strictly limits the numbers of cannabis licenses a dispensary owner can have. Ojai cannabis businesses will never be able to take advantage of the same economies of scale afforded to dispensaries in other cities, due to these restrictions. The focus on small independent businesses is a big reason why we love Ojai but it also translates to higher operational costs for Ojai shops.

Discriminating against users of a plant medicine by inflicting burdensome higher taxes on them is inherently biased and steeped in racist traditions. Continuing to punish cannabis users and licensees when the war on drugs has so clearly failed and harmed so many people is contrary to Ojai’s values. Let’s put our collective minds together to brainstorm other ways the city can generate revenue to replenish its depleted emergency reserve fund. Property taxes on churches? Decriminalize and allow sales of psilocybin? Cannabis cafes for the vacant lots on the East End of Ojai Ave? We hope you agree there is a better way to approach this problem than taxing dispensaries to death.

How To Act:

​​You have the chance to ask Ojai’s City Council to reduce the rate at their rescheduled meeting on December 15 at 7 pm (Item #4 on the agenda).

If you wish to submit written public comments under all agenda items, do so in advance via email no later than 5 pm on the day of the meeting. Public comment emails should be sent to [email protected]

If you wish to speak via telewebinar, register in advance no later than 6 PM on the day of the meeting. Use this link: tinyurl.com/yy136svu.

One comment on “Six Things You Need to Know About Ojai’s New Cannabis Tax

  1. Chelsea,
    Thank you for brilliantly explaining the Measure G tax issue. I will send a statement to Luis Gomez supporting the lowest possible tax.
    Dale Hanson

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