CALIFORNIA CITY — Recent changes to the City’s cannabis tax rates put the City in a position to be a potential hub for the industry.
During its regular meeting on Tuesday, the City Council unanimously voted to lower the cannabis manufacturing and distribution rates from 6% to 1% for manufacturing and 0.5% for distribution.
The rate reduction puts the City in line to be a competitive option with other cities that have already established low or no tax rates.
“The cannabis tax rates absolutely affect the business and what industry it attracts to the City,” said Jason Meister, a local cannabis investor. “By having favorable tax rates in California City, California City has an opportunity to become the largest cannabis city in all of (the state). I truly believe that.”
City Manager Anna Linn said the City embraced the growing industry for one reason only, revenue.
“The benefits of this potential revenue will ultimately benefit the residents by allowing the City a revenue source to improve parks, streets landscaping throughout the city and more job opportunities for local residents,” she said. “It will also help to eliminate the special tax and absorb public safety to the general fund.”
Meister came before the Council and outlined the City’s opportunity to take advantage of the industry’s wholesale market.
“California City has unique things to offer to the industry,” he said. “We have land, water, a good climate, sunshine, an established ordinance, a city hall you can walk into, in normal times, ask questions, and proceed with your development.”
In Meister’s presentation, he was able to show the geographic advantage for the City as to why it should move on this opportunity to be part of the wholesale market.
“We are at the northern end of the Southern California region for cannabis,” he said. “We’re just outside of LA. We’re also in relative distance to San Diego, which is another large retail market. Geographically, right now, California City has an opportunity, in my opinion, to capture a large share of business here.”
Despite all these things to offer, Meister asked why the City only has 2.1% of the licensed manufacturing market and 1.1% of the distribution market in the state.
“I would argue more businesses have left California City than have come to California City, and I believe that’s due to the high tax rates specific to distribution and manufacturing.”
Ray Iskander, owner of Bud Technology and the first licensed distributor in the state, said the 6% tax is the largest hindrance to business prosperity for distributors and manufacturers in the City.
“I have a manufacturing building, it’s gorgeous,” he said. “We don’t have a single employee. We’ve paid all of our taxes to the City and to the state to keep up that license praying for the day of this meeting that you’re having today. We literally struggle every day to try to make ends meet. Our cost of insurance is four times higher than anybody else in regular business.
Local cannabis business owner Anthony Espindola said customers have gotten wise and shop for taxes now.
“If I manufacture something I’m paying 6% and then I’m going through a local distributor I’m paying another 6%, that’s 12%,” he said. “So that $60,000 on a million is now $120,000 on a million for a product that I created myself here in Cal City. Then when we pass it on to the consumer; the consumer just will not buy stuff from Cal City because it’ll be too expensive.”
James Bryant, a representative of the cannabis company Traditional, said they want to bring business to Cal City but they are willing to run distribution through another city that has a more advantageous tax opportunity.
“What we want to do is we want to we want to take advantage of all of those new cultivators that are coming online,” he said. “We want to make sure that there’s an opportunity, instead of having to run their business outside of California City; they’re here.”
Staff originally proposed for the rates of manufacturing and distribution be lowered to 1% but representatives of the local cannabis industry suggested the City lower distribution to 0.5% and Councilmember Jim Creighton agreed.
“If we want to be more competitive and draw the business here, we need to undercut,” he said. “Somebody is going to come along and undercut us if we go to a half a percent, but at least we’re still going to be more competitive than those that stay at 1%.”
Although the Council voted and approved the reduced tax rate, a new ordinance will be drafted and presented at the next Council meeting in April to be officially adopted. The Council also asked the new ordinance to be retroactive to April 1 since it is the beginning of a new fiscal quarter.