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Grover Beach plans to attract more businesses with reduced cannabis tax 

Producing and distributing pot in Grover Beach is about to be more pocket-friendly thanks to a new drop in commercial cannabis tax.

The Grover Beach City Council unanimously greenlit the plan at its Oct. 25 meeting to attract businesses in the cannabis industry to the beach city. Grover Beach's cannabis industry has been expanding ever since its first legal marijuana business opened in May 2018. In fiscal year 2020-21, the city raked in $2.4 million in cannabis revenue. It's a major leap from the $16,359 the fledgling industry generated that first year.

click to enlarge BUSINESS BOOM Grover Beach's young cannabis industry may have only brought in about $17,000 in its first year, but now it generates $2.4 million in revenue. - FILE PHOTO BY DYLAN HONEA-BAUMAN
  • File Photo By Dylan Honea-Bauman
  • BUSINESS BOOM Grover Beach's young cannabis industry may have only brought in about $17,000 in its first year, but now it generates $2.4 million in revenue.

The sector pulls in 15 percent of the city's general fund revenue—the third largest source in the city. Currently, Grover Beach has 29 authorized cannabis businesses, 12 of which are operational.

"We have continued to be cautious with these revenues because it's a new industry that has significant uncertainty as we go forward," Grover Beach City Manager Matthew Bronson said at the meeting. "The illegal underground market is still in too strong of a position for us and other communities."

That's why the council recommended careful use of the money for mainly one-time purposes like paying pension liabilities.

Bronson explained that Grover Beach's retail, manufacturing, distribution and testing tax rates mostly fall below the average rate of 35 neighboring jurisdictions. But its distribution tax rate of 3 percent is higher than the rate in areas like Santa Barbara County and Carpinteria (both 1 percent), and even San Luis Obispo County (2 percent).

Higher distribution taxes could scare off interested businesses, and the city would lose out on revenue, Bronson said, adding that manufacturers and retailers would choose distributors with lower cost. Cost is partly informed by the tax rate.

"Even though there may be a distributor close by, if there's a higher tax, they may use somebody [else] who's significantly far away," he said at the meeting. "Distribution is a key middle ground, ... it's a linchpin for our industry."

Based on this finding, city staff recommended a "tiered rate" structure where the distribution rates for Grover Beach's cannabis businesses decrease from 3 to 2 percent. Clients of businesses earning more than $10 million in annual gross revenue would pay a reduced 1 percent in distribution tax. They would also enjoy a reduction in manufacturing tax at higher-level businesses from 3 to 2 percent. The overall lab-testing rate would decrease from 3 to 1 percent.

Bronson told the council that staff didn't want to overcomplicate the tax plan.

"Our tax structure is easy to understand, consistent, and you know what you're getting based on our tax rate," he said.

City staff estimated a $70,000 decrease in cannabis revenue because of the updated tax rates but is confident that it will result in an "undetermined increase from new businesses."

Mayor Pro Tem Karen Bright said it was important for the city to stay competitive with its tax rates.

"In the long run, it will be beneficial to not only the city but also to businesses who hopefully will come join our community," she said at the meeting.

The current cannabis revenue lining Grover Beach's pockets would be used to improve infrastructure.

"The higher revenues from cannabis taxes as well as the additional 1 percent sales tax approved by voters in 2020 are allowing us to carry out more capital projects like major street repairs and sidewalk improvements and improve our services such as adding police officer positions," Bronson told New Times. Δ

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