Tuesday’s election includes a cannabis tax that claims to help medical patients and victims of the drug war. We checked whether these claims are half-baked.
San Francisco voters always have been very kind to marijuana. Almost 75 percent of us voted for 2016 Theorem 64, which legalized recreational cannabis. The Original Medical Marijuana Measure, 1996’s Theorem 215, passed here along nearly the same landslide margin.
But next week’s elections will test another side of San Francisco’s tolerance for legal weed: our tendency to tax local cannabis sales more.
The new marijuana tax was originally proposed by the late Mayor Ed Lee in 2017, before recreational marijuana was even legalized. The version you’ll see on Tuesday’s vote is Theorem D, the “Additional Tax on Cannabis Businesses” Introduced by District 10 Sup. Malia Cohen.
“San Francisco is the last major city in California to have a [local] cannabis tax,” says Cohen SF Evergreen. “We have drafted the lowest, most progressive tax of its kind in the entire state.
“This is to set up an infrastructure for a tax to be levied on cannabis-related businesses because we don’t currently have any,” she adds. “The legal cannabis industry is brand new. They are still learning to operate in the legal market. I believe this infrastructure really helps them get there.”
If passed, the measure would bring in an estimated $7 to $16 million each year, which supporters say would subsidize compassion programs for cancer and HIV patients, establish union hiring practices and empower equity entrepreneurs. funding from communities traditionally persecuted by the War on Drugs.
Critics point out that there is no guarantee that the money will actually be used for these things. The full text of the measure confirms that “the revenue from this additional tax would go to the General Fund, which the city can use for any public purpose.”
green cross Pharmacy founder and president Kevin Reed has spoken out in his opposition. “The voting argument is unfair at best,” he says SF Evergreen. “If the city really wants compassion programs for low-income patients, then we need to turn down Prop. D so that companies can better afford to give away free medicines to patients in need.”
You may be confused, considering you already pay more than 20 percent in state and excise taxes on your marijuana purchases. But Prop. D is no tax on the weed you buy. Instead, it’s a tax on gross receipts for cannabis companies in San Francisco that do more than half a million dollars in business annually.
“The heaviest tax burden should fall on the highest-earning companies,” says Cohen. “We always say, ‘Tax the rich.’ ”
Reed points out that very few of these bud companies are truly wealthy, due to already high taxes and the high cost of regulatory compliance.
“In a world where a cannabis company pays regular taxes, a new tax could be fine,” he says. “But here in California, cannabis companies are already subject to a 10 percent crop tax, 15 percent excise tax, 9 percent sales tax, not to mention exorbitant testing costs.
Worse, since US law still prohibits cannabis companies from taking standard corporate deductions from federal taxes, cannabis companies are taxed on expenses such as rent and payroll that all other companies deduct — raising the effective tax rate of cannabis companies to a whopping 90 percent, ” he says. “Every little bit hurts, and this high local load hurts even more.”
However, it is true that this tax does not apply to most cannabis businesses in San Francisco. The Prop. D-tax would not take effect until a company reaches $500,000 in annual sales.
The San Francisco Office of the Controller estimates that about half of San Francisco’s marijuana companies don’t even make $1 million a year, let alone the $500,000 that would settle this cannabis tax.
And those small stores only account for about 3 percent of all marijuana sales in the city, according to Controller data. Meanwhile, well-funded franchised pharmacy chains and nationally known delivery services — which make up just 14 percent of the city’s marijuana industry — have absorbed more than 63 percent of San Francisco’s cannabis sales. Prop. D strives for a level playing field dominated by out-of-town ownership.
“This isn’t a haphazard half measure, it’s actually data-driven,” Cohen tells us.
The tax does not only apply to pharmacies, but also to delivery services, growers and extractors of cannabis oil. Prop. D would tax these industries at different rates.
“Growers and manufacturers only pay 1.5 percent tax,” she says. (In reality, some companies would be taxed at a 5 percent rate.) “Growers and manufacturers don’t have the flexibility to add storage to their products. Retailers have the option to add a small surcharge. The tax rate is responsible for that.”
But opponents of the tax argue that it only serves to penalize companies that already pay a fantastically higher tax burden than comparable companies that don’t trade in weed.
“This harms cannabis consumers, and low-income cannabis consumers the most,” says Green Cross’ Reed. He points to the example of an edible product that is taxed 1.5 percent at every step of the supply chain, from grower to manufacturer to distributor, and gets another 5 percent with this new tax.
“Edible is up 9.5 percent and most of these companies will pass most of this cost on to customers,” explains Reed. “Customers who are already struggling to pay for cannabis, especially those with highly unpredictable medical bills who need cannabis for their health, will be least able to afford this tax surcharge.”
San Francisco officials clearly regret missing out on an opportunity to levy these taxes before the big legal weed celebrations of last January 1, when staggering stoners would have happily paid whatever tax rate was offered to them. Now the city is trying to adjust to the local cannabis tax rates of other cities, such as Berkeley (5 percent) and Santa Cruz (8 percent).
But Oakland will vote Tuesday on whether or not cut are local marijuana taxes, fearing the tariffs have driven too many people back to the black market. In fact, city councils are grappling with the same problem plaguing the pot industry. They know there is a green flow of cannabis sales, but they don’t see enough green flowing into their bank accounts.