Even though San Jose, California considers all of its 100 or so medical marijuana dispensaries to be unlawful, city officials are still welcoming the pot providers to City Hall on Monday to talk about a new program which greatly interests the cash-strapped city: a marijuana tax.
Most dispensary owners always assumed taxation would also mean legal acceptance, but now it appears the beleaguered providers will be catching it from both sides: they’re still subject to police raids at the same time they are responsible for paying taxes.
San Jose has emerged as a key medical marijuana regulation battleground in California, but that hasn’t stopped its broke city government from wanting a piece of the financial action.
Oakland and Berkeley both raised their medical marijuana taxes in November. And state authorities last week made it clear they don’t believe cannabis is exempt, as a medicine, from sales taxes, demanding $6.4 million from a Berkeley dispensary.
San Jose city officials claim that taxes must be paid on medical marijuana sales regardless of the dispensaries’ legal status. Though most local dispensaries are already paying city business and California sales taxes, city officials claim they aren’t getting their fair share.
“We believe we’re being grossly underpaid,” said Deputy City Manager Deanna Santana.
The whole situation understandably seems surreal to the city’s dispensary owners.
“It’s in the code that you have to tax these businesses, but you don’t have to — even when you take their money — say they’re legitimate businesses,” said David Hodges, founder of the San Jose Cannabis Buyers Collective, which relocated after city code enforcers threatened to fine its landlord.
San Jose saw the number of dispensaries soar from none to more than 100 in less than two years since City Councilman Peirluigi Oliverio suggested the city consider allowing and taxing a limited number of them. Voters — who have seen city services cut due to city budget shortfalls — approved the Oliverio-sponsored marijuana tax, Measure U, by 78 percent in November.
San Jose faces a 10th straight year of red ink, looking this year at a $110 million deficit. City officials are eager to start collecting the new tax, even though zoning regulations allowing dispensaries are still months away from a vote.
Even though City Hall has invited dispensary operators to a seminar Monday at City Hall, many of the shops are upset.
|Photo: MMJ Business
|Steve DeAngelo, Harborside Health Center says San Jose’s pot tax will push prices above black-market levels
San Jose’s pot tax, along with the 9.25 percent sales tax, will push retail marijuana prices above black-market levels and those of dispensaries in nearby cities, according to Steve DeAngelo, executive director of Harborside Health Center.
“We’ll see an outflow of patients to the illegal market or to other jurisdictions,” DeAngelo said.
He pointed out that Berkeley’s medical marijuana tax is just 2.5 percent, even after voters in November approved a hike from 0.12 percent. Oakland voters approved raising that city’s medical marijuana tax from 1.8 percent to 5 percent.
Nobody seems sure just how much money San Jose’s medical marijuana tax might yield for the city. As of December, city officials said they’d received a total of $13,412 in business taxes from 88 dispensaries. The city has also received $70,659 from its one percent share of state sales taxes from 61 dispensaries with sales tax permits.
Not all dispensary operators are opposed to paying the tax.
“It definitely would establish legitimacy,” said Luke Teleske, president of the Garden House Remedies marijuana cooperative.
Meanwhile, San Jose city officials said in a February 11 memorandum that a review has determined that all of the known medical marijuana dispensaries in town violate council guidelines limiting them to commercial areas and requiring them to be at least 500 feet from homes, schools, libraries, day-care centers and each other.
City officials said last week they hope to have an ordinance for permitting “a limited number” of medical marijuana dispensaries before the City Council in June.
But dispensaries will be expected to track gross receipts for sales beginning Tuesday, March 1, with the first payment due April 30. Failure to pay can lead to stiff penalties and misdemeanor charges.
“The fact that they are trying to tax them now when there are 102 [dispensaries], and then later put regulations and zoning forward, and possibly a business license, then you accepted a business tax from all these businesses, then you’re going to turn around and tell them they are not allowed to exist anymore,” Nicki Bock of Cal-Med Wellness Club told reporter Terry McSweeney of KGO
DeAngelo also feels San Jose has put its tax cart before its regulatory horse.
“I can understand that it’s a slow process, that it’s unfamiliar territory,” DeAngelo said. “But if the city knows enough to impose a seven percent tax, it should know enough to regulate.”