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Tax rates on cannabis are being reconsidered before the local industry even opens its doors 

In November 2016, voters in Grover Beach passed a measure to tax commercial cannabis businesses. The approval made the city the first in San Luis Obispo County to pass a tax on what many believe will be a lucrative industry.

click to enlarge THE TAX MAN COMETH After welcoming cannabis businesses, cities like Grover Beach must now wrestle with just how much to tax the new industry. - PHOTO BY JAYSON MELLOM
  • Photo By Jayson Mellom
  • THE TAX MAN COMETH After welcoming cannabis businesses, cities like Grover Beach must now wrestle with just how much to tax the new industry.

But a year and a half later, Grover Beach's elected officials are already mulling lowering them, citing fears that high rates will drive cannabis-related businesses to other cities.

"I certainly don't want to overtax people if we can help it," Mayor John Shoals told members of the Grover Beach City Council during an April 2 discussion on the issue.

Currently, commercial medical marijuana businesses in Grover Beach will pay a 5 percent gross receipts tax, while non-medical cannabis businesses pay 10 percent. Cultivation and nursery operations must pay $25 per square foot for the first 5,000 square feet, and $10 per square foot for any more space beyond that.

The city's taxes come on top of California's 15 percent excise tax on all cannabis sold in the state. Cultivators must also pay a state tax of $9.25 per dry weight ounce of flower and $2.75 per dry weight ounce for leaves.

"In the industry, we are already facing high taxes at the state ... we believe the rates should be competitive," Ali Cooper, vice president of government relations for Natural Healing Center, told the council.

Natural Healing Center is one of four dispensaries permitted to operate in Grover Beach. Cooper urged the council to consider lowering its tax rates, suggesting a rate that started as low as 2 percent and gradually increased over time.

The discussion comes as other local governments are crafting their own tax measures, many with rates that are lower than Grover Beach's. SLO County's proposed rate, set to go before voters for approval in June, will start at 4 percent on gross receipts, and will automatically increase by 2 percent each year beginning in 2020 up to 10 percent. The Santa Barbara County Board of Supervisors approved a measure that, if passed by voters in June, would tax cannabis retailers at 6 percent, cultivators at 4 percent, and 1 percent for nursery and distribution operations. Local cities like SLO and Morro Bay are also considering their own commercial cannabis tax measures, which could go before voters in November.

Lower rates elsewhere could lure investors like Kevin Galvin away from Grover Beach. He told council members on April 2 that he was looking for property to open a manufacturing facility.

"People like myself will view that in a competitive environment and make a decision that is best for our businesses," he said.

But not everyone is so eager to see Grover Beach lower the newly passed taxes. Resident Anthony Embrey said that the businesses that already applied for permits were aware of the city's rates.

"Everyone knew the tax schedule before they applied. Everyone knew the rules before they applied," he said. "Now that you've let them in, they want you to amend it in their favor."

When the city pitched the tax to voters, it estimated that the measure could generate between $1 million and $2 million in revenue annually. During the recent discussion, Shoals voiced concerns about reneging on that promise.

"I'm not about to go and do a bait and switch on the folks who live in this community and vote in this community," he said.

Still, Shoals and the rest of the council advised city staff to explore lowering the tax rates, including decreasing the tax to 4 or 5 percent for retail businesses, lowering the rate to 2 or 3 percent for manufacturing and distribution businesses, and slashing the cultivation tax to $5 per square foot. The city wouldn't need voters to approve lower tax rates.

While Grover Beach considers its next move, the cannabis industry may also get a break from the state's taxes. In February, state Assembly members Tom Lackey (R-Palmdale) and Rob Bonta (D-Alameda) introduced a bill that would lower the state excise tax to 11 percent and suspend the tax on cultivation.

The bill is currently being reviewed by the Assembly's tax and revenue committee. Δ

Staff Writer Chris McGuinness can be reached at

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