Cannabis dispensaries in San Diego’s backcountry will pay some of the lowest taxes on such businesses in the county, after the Board of Supervisors set tax rates they said would allow the businesses to compete with those in neighboring cities.
On Tuesday, the board voted 4-1 to authorize taxes on the five existing marijuana businesses in unincorporated parts of the county and any new ones. Supervisor Jim Desmond objected, saying he didn’t think the tax rates would cover costs of traffic enforcement to prevent intoxicated driving.
San Diego County voters approved a general tax on cannabis businesses in November, authorizing the county to establish a tax system for cultivation, manufacturing, testing, distribution and sale of marijuana and related products. Because the ballot measure authorized a general tax, the money collected will go into the county’s general fund and can’t be earmarked for specific purposes.
The measure is a step in the board’s plan to expand options for cannabis businesses in unincorporated county. By permitting new, legal marijuana operations, county officials hope to eradicate the black market and redress the social and economic effects of past “War on Drugs” policies on communities of color.
Under the new system, cannabis businesses in unincorporated county areas will pay up to $7 per square foot for cultivation, as well as 2.5 percent for manufacturing, 1 percent for testing and 2 percent for distribution and gross receipts of retail sales. County staff had recommended taxing retail sales at 4 percent, but supervisors voted to reduce that to 2 percent.
“I would like to propose that we lower the retail tax to 2 percent to remain the most competitive in the region, as we encourage businesses with our legal operators in the unincorporated area,” Board Chair Nora Vargas said.
She also proposed taxing cultivation by square footage rather than revenue, saying that would result in more predictable costs for business owners.
The adopted rates, particularly for retail sales, are among the lowest in the county. By comparison, Chula Vista taxes marijuana cultivation at $25 per square foot, and all other operations at 7 percent. The city of San Diego taxes retail at 8 percent and everything else at 2 percent. La Mesa, Lemon Grove, Oceanside and Vista set cannabis retail tax rates between 4 and 7 percent.
Despite the board’s decision to halve the sales tax rate, cannabis business owners said that even the reduced rates are too high.
Greg McCluskey, owner of Ramona Cannabis Company, said legal businesses are at a disadvantage compared to illegal pot shops and delivery services, which operate without fees, licenses and other overhead. The new county taxes will widen that gap, he said.
“You must enforce the law or lower taxes to combat the illicit market,” he said. “We need to keep taxes as low as possible.”
Other speakers argued that the board should set higher tax rates to cover costs including enforcement, drug prevention programs, healthcare expenses and impacts of the dispensaries on surrounding neighborhoods.
Desmond said tax revenues should be set high enough to pay for traffic enforcement, in case the marijuana dispensaries later apply to open consumption lounges.
“As we set these dollars that are collected, I do think they should be benefiting the communities that they’re in,” he said. “County code allows for consumption or smoking and tasting rooms on site. If people are getting high and driving on winding roads (that are) dimly lit in the unincorporated area, that’s a bigger problem.”
The board will vote whether to authorize the cannabis tax ordinance on Feb. 28. If they finalize their approval then, the tax will take effect April 1, with the first payments due in July.