What’s the Deal with Cannabis Taxes?

Chelsea Sutula, our fearless leader, speaks at the Ojai City Council in opposition to additional cannabis taxes.

Greetings Sespe Community!

We have a policy update for you. Bear with us, this is important — we’re talking about YOUR money and OUR viability as a small business.

May 14, the Ojai City Council discussed the potential for a special tax of up to 10 percent on cannabis business’ gross receipts. The matter will be presented to City voters (approximately 5,000 registered voters as of 2016) in 2020.

We’re happy to pay our fair share, and it’s important to note the degree to which cannabis businesses are already taxed by the state of California. Let’s use the example of a cannabis retail business and a retail business that sells a separate consumer good — let’s say ice cream.

Both businesses, in our example, have $500,000 in annual gross profits. The cannabis business will pay 21 percent of those gross profits in federal taxes, while the ice cream business will pay just 6 percent of that gross in taxes.

In addition, cannabis businesses pay a 15 percent California state excise tax on the average retail value of products purchased from legal distributors. For us, that excise tax works out to a 24 percent tax at the wholesale level.

Let’s be clear: these excise taxes, plus revenue from a similar tax on cultivators fund some incredible grant opportunities for statewide programs including job placement, mental health services, and treatment for substance abuse. We’d love to see our community take advantage of this grant program before considering new business taxes.

Local proponents of a special tax on cannabis sales often refer to the example of the city of San Luis Obispo, which has placed a six percent tax on gross cannabis receipts. There are some important differences between Ojai and our northern neighbors.

Ojai’s cannabis regulations require owners to reside inside Ventura County — a measure that promotes small businesses like ours. There’s no such regulation in San Luis Obispo, meaning that large cannabis businesses aren’t prevented from entering the marketplace. Large businesses are much better equipped to absorb additional taxes than Ojai’s small, locally-owned businesses.

Finally, it’s important to note that cannabis businesses encounter a number of hurdles to success that our theoretical ice cream business would not, including high security costs and the inability for cannabis businesses to hold federal bank accounts.

Our humble suggestion to folks looking to increase Ojai’s tax revenue with the cannabis industry is to allow temporary cannabis events — something like a wine festival for cannabis. How fun would that be!? We’d be happy to partner with our community to make such an event fun, safe and beneficial for all community members.

Another piece of news from the May 14 Council meeting is a positive development for our local industry: the group voted to introduce an ordinance that would allow each of the city’s existing three dispensaries, including Sespe Creek, to apply for a microbusiness license. Microbusinesses are permitted to do cannabis distribution, manufacturing and retail business, all in one (small) location. The ordinance would also allow for the permitted manufacture of cannabis products using non-volatile solvents (Type 6), the manufacture of cannabis products using an injection process (Type N) — typically edible and topical products, and the packaging and labelling of cannabis products (Type P).

The ordinance will require a second reading to become law. All of these cannabis businesses, once licensed, would be required to be located in the city’s manufacturing zone (the Bryant Circle area).

We’re looking forward to welcoming additional community-minded cannabis businesses to town and believe this ordinance presents a fantastic opportunity for Ojai’s economy to diversify beyond tourism. But we must not tax this growing sector out of existence.

The bottom line for us is that we’re committed to being a responsible member of our community. That includes paying our fair share of taxes, and we humbly believe that we’re already achieving that.

We’ll keep you posted on these issues as they evolve!

One comment on “What’s the Deal with Cannabis Taxes?

  1. Sounds like Gordon Geko is on the city council. Greedy MoFo’s. What other business model gets treated like the cannabis business? My 80 year old father and his brother were in your place of business last week. I wish you were in the arcade in place of the Hub! That would be fantastic.

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