Dispensary says "Pot Tax" too high

Palm Springs voters will decide Nov. 5

Palm Springs, Calif. - Palm Springs is the only city in the Coachella Valley that currently allows the sale of medical marijuana.

On November 5th, the city will ask voters to approve a sales tax of up to 15 percent on sales by marijuana collectives.

It is a general tax, and the funds from it would go into the general fund.

The ordinance is written to keep tax costs away from consumers, but the manager of one of the city's three permitted collectives says any large tax on businesses will eventually find its way to consumers, adding that a 15 percent tax would put the non-profit Organic Solutions of the Desert out of business. 

"We could probably, maybe at the most, eat five percent, and that's cutting it close," Organic Solutions of the Desert Manager, Shanden Sessions, said.  "We're willing to help out and pay the taxes and do everything that's legal and 100 percent right, but that's just too much, too fast. It'll close us down."

Palm Springs Mayor Steve Pougnet and the entire city council are in favor of the tax. None were available for an interview, so we spoke with City manager David Ready, who says the tax is necessary to regulate operations of marijuana collectives.

"First of all our intent is not to put anyone out of business," Ready said. "The city attorney has studied this extensively. In all the other cities that have taxes on this, there's not one that has gone out of business that we know of." 

"Actually," Ready continued, "There are a lot of applicants that want to get into the business. We have several applicants that want to get into the business here, so we don't believe that will be a problem."

The problem, Ready says, is the illegal dispensaries that frequently pop up which have cost the city more than half a million dollars to catch and close down.

Ready says city council will likely set tax rates higher for illegal dispensaries and work with the three permitted ones at a tax rate much lower than 15 percent.

Organic Solutions would prefer to see those lower tax rates in writing. The ordinance that is on the November 5th ballot gives city council the power to set and adjust the tax rate on marijuana as they see fit, as long as it does not exceed 15 percent. The money generated is also not targeted for a specific purpose, though Ready says it is needed to regulate the industry, including closing illegal dispensaries.

Organic Solutions of the Desert wants to keep working with the city, and say they are willing to pay a tax that they can afford, without dramatically raising costs to their 7,000+ members.

"It's a very vague tax," Sessions said. "It needs to definitely be re-written and straightened out. Put into context where we know exactly what we're being taxed on, where the money's going to. How much the tax is exactly going to be. Not, up to, where we can raise or lower it as we feel. That's crazy."

Below is the complete Q and A with Palm Springs City Manager David Ready on Measure 'B'

Q: Why does the city want to pass Measure 'B'?

A: "It's following what many cities have done throughout the state, because the cities have to regulate the operations, so there is a significant cost involved in that."

Q: One permitted dispensary has told us this tax would lead to them going out of business. Is that the city's goal? 

A: "First of all, our intent is not to put anyone out of business. The city attorney has studied this extensively. In all the other cities that have taxes on this, there's not one that has gone out of business that we know of. 

"Actually there are a lot of applicants that want to get into the business as we have several applicants that want to get into the business here, so we don't believe that will be a problem."

Q: Why not be more specific about the amount of the tax? It says it can be up to 15 percent?

A: "That's a good question, because what we're probably going to look at is, there will probably be a higher tax on those operating illegally, and a lower tax on those operating legally. So, we're going to have significant input from the collectives, and from the people that use it. So, council when they make this decision will do it in a way that's not onerous or burdensome to the operators, but yet it covers our city costs."

Q: If you're going to be able to effectively tax those that are operating illegally, shouldn't you be able to just shut them down?

A: "Yes we should, and that's the strange part of this law. We have had about 20 illegals pop up in the city over the last few years. One, it took us two years to shut them down. It's like what other cities do, if they're operating illegally, until you can shut them down, you will tax them and they need to pay their fair share. Otherwise, all the people who are operating legally, and the citizens, have to pay these legal costs to shut them down. So, it's sort of like a two-fold approach.

Q: The tax is taken as a percentage of sales, but it (the ordinance) clearly states this is not a sales tax. How is this not a sales tax?

A: "Because there already is a sales tax and it's actually charged to the customer. So this can not be a sales tax. The measure that's on the ballot will prohibit it from being a sales tax. So this is a tax on the actual owner and operator of that establishment, not on the individuals in it. It can not be passed through."

Q: We're talking about medical marijuana. Is this a tax on medicine?

A: "This is medical marijuana, and again this is one of those very interesting laws where it's not legal federally. It's legal under the state. No one wants to regulate this. The city has to stand in the regulatory shoes if you will to make sure it's safe, it's in the right places, and we have to recover our costs. It's not a cost on medicine. We're in this position because we're forced to be in this position."

Q: The one percent sales tax increase from Measure J has put millions of dollars into the general fund. Why does the city need to add an additional tax on medical marijuana?

A: "The tax from Measure J, that was a sales tax. The community understood that was for capital improvements. It was for streets and parks and roads. All those things that we haven't been able to do. The medical marijuana is a completely separate issue. It requires significant city resources to enforce the regulations and the illegals. That is clearly a separate issue from what Measure J was intended for."

Q: Have the permitted dispensaries been a problem for the city?

A: "No. Actually they have not. They have provisions in the ordinance that allow us to take a look at the things that they need. To work with them cooperatively. That has been, I think, a good thing for the city. It's been rather successful. The key is to get the illegal ones off the street because we do not have those relationships with them. We can't guarantee the product is safe. We have no idea where they're going to sprout up next to residents. So, that's why it becomes a problem."

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