Oakland To Lower Tax Rate On Small Cannabis Businesses

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Businesses making less than $500,0000 will be taxed 0.12 percent instead of 10 percent.

OAKLAND — Oakland’s small cannabis businesses will get a substantial tax cut after several entrepreneurs complained that the city’s previous rate was making it so only big companies could survive.

The City Council voted unanimously to lower the gross receipts tax on cannabis businesses that make $500,000 or less from 10 percent — one of the highest rates in the state — to 0.12 percent, or $1.20 for each $1,000. The new rate will be levied on businesses’ 2019 earnings, which will be paid at the start of 2020.

“We don’t want it to be an industry (with just companies) like Phillip Morris, or something. We want some grassroots production,” council member Rebecca Kaplan said at Tuesday’s meeting.

Council members will consider lowering the taxes for cannabis businesses that make more than $500,000 at a June 4 meeting.

Dozens of owners and employees of all types of cannabis businesses — dispensaries, testing labs, cultivators, and others — testified at Tuesday’s meeting about how difficult it was to get their businesses off the ground and keep them stable in Oakland’s economy.

Dispensary owner Amber Senter, who is also on the board of Supernova Women, an advocacy organization formed by and for women of color in the cannabis industry, said that the average profit margin for cannabis businesses is around 10 percent. That means companies that are making $500,000 in gross receipts are only generating around $50,000 in profits: That affords individuals to basically only employ themselves, she said. Oakland’s gross receipts tax rate of 10 percent brings those margins even lower.

“All the big guys, they’ve already left, and now thousands of jobs are at stake,” Anwar Batel said at the meeting.

James Anthony, of the Oakland Citizens for Equity and Prosperity cannabis business trade association, said in an interview that 78 of the city’s 127 permitted cannabis companies earn less than $500,000 in gross receipts. Around 90 make less than $1 million, he said.

A ballot measure passed in 2010 set a 10 percent tax rate on all non-medical cannabis businesses’ gross receipts; medical cannabis businesses have a 5 percent tax rate on gross receipts. That non-medical cannabis businesses’ rate went into effect in January 2018, when recreational marijuana sale was legalized under Proposition 64.

Berkeley’s tax rate for marijuana businesses is 5 percent, Emeryville’s is at most 3 percent, Santa Rosa’s is at most 3 percent and San Francisco’s is at most 5 percent.

“If Oakland’s tax rates are not adjusted, our worry is that Oakland’s cannabis businesses will decline and that unregulated market will grow rather than comply with regulations,” said Oliver Luby, chief of staff for council member Dan Kalb.

The larger companies are also threatened by the tax rate, speakers said. Terryn Buxton of Oakland Extracts said every time he has met with potential investors, they have asked if he was willing to move the business out of the city.

Kalb and Kaplan also proposed lowering the gross receipts tax rate for all cannabis businesses to at most 5 percent, and having a tiered rate schedule for companies that make less.

The city administration urged against the tax cut. In a report, finance director Katano Kasaine said lowering the rate would result in the tax bringing in $9.1 million less than expected in the 2019-20 fiscal year, and $9.8 million less than expected in 2020-21. Kasaine said the loss could will have to be made up for during the budget process for the next two fiscal years, which is underway now, and could result in cuts to city services.