CA: Ballot To Include Cannabis Tax Measure

Photo Credit: Sentinel File Photo

While the Hanford City Council rejected the idea of commercial adult-use cannabis manufacturing, they did OK a tax measure on cannabis companies that will be voted on by the residents of Hanford.

On Tuesday, Council was presented with the ballot language and the ordinance that laid out the details of the proposed tax measure on commercial cannabis businesses that locate in Hanford.

The tax would apply only to the cannabis businesses and wouldn’t come out of the wallets of Hanford residents.

Community Development Director Darlene Mata said each one of the businesses would pay an annual permit fee to locate in Hanford, and those fees would be used to regulate the commercial businesses. She said the revenue from the taxes will help regulate the illegitimate businesses that operate within the city.

“These taxes would help us in funding the ability to go out and address those issues that we’re going to get,” Mata said.

The measure would be a general tax, which would require 50 percent plus one approval from voters to pass. The money would go into the general fund and could be used for anything, but is anticipated to be used for police and fire services, and roads and recreation.

Police Capt. Karl Anderson said problems are going to arise with the legalization of adult-use cannabis in general, and he would rather tax the cannabis companies themselves to help combat those issues instead of the money coming out of the residents’ pockets.

“Cannabis is a reality, and regardless of how you feel about it morally, it’s better to at least consider some sort of regulatory structure to give yourselves the tools to clamp down on the black market, if nothing else,” Tim Cromartie from HdL Companies, the city’s cannabis consultant, said.

Cromartie said the tax rates should be high enough to generate proceeds to offset city costs, but low enough to ensure sustainability by not over-taxing the industry.

In November, Council approved 21 permits from three separate cannabis companies, including:

• Caliva – one cultivation permit, one manufacturing permit and one distribution permit

• Genezen – one cannabis campus permit, 14 cultivation permits, one manufacturing permit and one distribution permit

• Premium Extracts – one manufacturing permit

The tax policy on cultivation would be based on the square footage of the cultivation area, not necessarily of the entire building itself. Cromartie said it would be a predictable, stable revenue stream to the city that would help budget for on-going city costs.

The tax policy on manufacturing would be based on gross receipts. Cromartie said the revenue the city would see would fluctuate depending on how well the business is performing.

The tax policy on distribution would also be based on gross receipts.

Part of the proposed tax ordinance included a two-and-a-half year freeze on tax increases in order for the market to stabilize and also set minimum and maximum rates. There are flexibility options where Council can increase or decrease rates depending on factors like inflation.

As a precaution, the tax ordinance also established rates on businesses not currently permitted in the city, like retail or even unlawful sales.

Vice Mayor Sue Sorensen said she sees the value in taking a proactive approach and regulating businesses whose product, although legal, may contribute to certain issues in the city.

“To have a business that we can recoup some of those expenses and a business that can give us the funds to protect our community better is kind of a neat situation,” Sorensen said.

The ballot language, which required a four-fifths supermajority vote to pass, passed with the necessary 4-1 vote, with Councilwoman Diane Sharp casting the only “no” vote.

The tax measure will be scheduled to appear on the Nov. 6 ballot, and if passed, would become effective Jan. 1, 2019.

If the measure fails, the cannabis companies that have been issued permits by the city to locate in Hanford can continue to function and conduct their business without additional taxes on their product.