![\"City](\"https:\/\/lamesacourier.com\/wp-content\/uploads\/2018\/03\/pot-tax.jpg\")
<\/a>McPherson\u2019s presentation laid out different strategies for taxing growers, manufacturers, distributors and retailers, but cautioned on overtaxing the new industry.<\/p>\n
\u201cSome cities think, \u2018Let\u2019s just tax and get everything we can if we\u2019re going to have them in town,\u2019\u201d he said. \u201cWell, you have to look at it as a goal of sustainability. How do we create a tax point that is going to be successful in getting the proper revenues that we want but at the same time we\u2019re not going to end up with a lot of vacant buildings in 18 months?\u201d<\/p>\n
To find that special \u201cpain point\u201d \u2014 the tax level where the burden is too hard on legitimate businesses to compete with black market actors \u2014 the marijuana industry looked to another industry that also was prohibited and then legalized: alcohol.<\/p>\n
\u201cWhen alcohol first came out, there was a lot of black market bootlegging related to finding that pain point,\u201d he said. \u201cWhat is that pain point? Well over 40 to 50 years that we have had regulations of alcohol, we found that 30 percent is that threshold where you have all these regulations and taxing mechanisms and touching points involved in the process, that 30 percent [of the total retail cost] seems to be that acceptable range.\u201d<\/p>\n
So, what portion of that 30 percent would be the city\u2019s? According to the mockup in the presentation, a little less than 7.5 percent of total retail cost. In McPherson\u2019s mockup, the city would take in approximately $400 for every pound of marijuana sold.<\/p>\n
But it is not just the numbers that the city will need to consider. The way businesses are taxed is equally important. For example, taxing growers by the square foot as opposed to taxing receipts makes it easier to prevent fraud in the all cash marijuana business. This can bring in less money over time due to inflation because the tax amount stays constant, even as the money\u2019s purchasing power is diminished. Still, McPherson said, taxing by square foot of grow space is better because it also solves the problem of businesses that are integrated with both retail and grow operations. Taxing gross receipts works for all other types of businesses including retail, manufacturing and delivery.<\/p>\n
McPherson also said it is important for cities to use stabilization in setting tax rates, making a set flat rate over a set amount of time with a \u201cnot to exceed\u201d component so that businesses can plan for the tax burden and not be caught by surprise with a tax bill no one had planned for.<\/p>\n
At the end of the presentation, City of La Mesa Director of Finance Sarah Waller-Bullock addressed the audience before opening the floor for questions.<\/p>\n
\u201cWe\u2019re not in the business of putting you out of business,\u201d she said. \u201cWe\u2019re just trying to get something that is going to work for us and for you.\u201d<\/p>\n
A pivot to recreational?<\/p>\n
Despite the complexity of the tax issue, there was only one question on the minds of the marijuana business entrepreneurs at the presentation: Will the city ever allow recreational marijuana sales?<\/p>\n
\u201cRight now, Measure U only allows for medical marijuana,\u201d Waller-Bullock said, but added that she will bring all the information gathered about taxing recreational and medical to the city council for consideration.<\/p>\n \u201cIt is going to be hard for La Mesa to get support from industry for this tax without opening up recreational,\u201d said Gina Austin, an attorney who works with marijuana businesses.<\/p>\n Waller-Bullock said the city will likely write a tax for medical but leave it open to implement for recreational if it is allowed in future.<\/p>\n La Mesa resident Ken Sobel, who is hoping to open a manufacturing facility for medical marijuana products, said the city should put a tax on adult side only and leave medical untaxed because 90 percent of sales would be recreational.<\/p>\n \u201cI think if we work collaboratively towards this, and we get the city council to give us an [adult use] license, and give us self-distribution rights, then we can build program that provides a lot of money \u2014 in the tens of millions of dollars,\u201d he said.<\/p>\n Rocky Goyal, who owns or is part owner of several marijuana businesses already operating in San Diego, said that taxes are going to be hard because the profit margins made by medical marijuana businesses aren\u2019t \u201cthat great.\u201d<\/p>\n \u201cThey\u2019re certainly not what I thought they were and what people think of when they think of this business,\u201d he said.<\/p>\n McPherson agreed that competing against businesses in municipalities that allow for recreational marijuana sales will someday be a problem, but that the medical marijuana market is still the dominant market.<\/p>\n \u201cWe\u2019re seeing a transformation, mostly the big cities, moving to adult use. In the short term, you don\u2019t have the immediate compression problem of just selling medical because 85 percent is medical,\u201d he said, but added that the city will need to be \u201cstrategic\u201d about recreational adult use in the future.<\/p>\n<\/a>