HomeMy WebLinkAboutED-CM San Rafael Cannabis Industry Tax Rate Setting PPTCity Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 1
Cannabis Tax
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 2
Background
•In June 2018, San Rafael voters approved Measure G, which
imposed a special business tax on businesses engaged in
commercial cannabis activity in the City
•The ordinance authorizes the City Council to adjust tax rates by
resolution no more than once every two years
•The rate is set by the Council and may not exceed 8%
•Currently, the City taxes cannabis businesses at rates based on
state license type
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 3
State License Type Tax Rates in San Rafael
State License Type Current Rates
Delivery,non-storefront retail 4%
Infused Products Manufacturing 3%
Cannabis Testing Labs 1%
Distribution 1%
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 4
Challenges
As the California cannabis market continues to develop, our local
businesses have come to us looking for relief from the many challenges
they face:
•Significant capital requirements without access to traditional lending
and banking services
•Costly compliance measures
•Competition with the illegal market
•Relatively low profit margins, along with high operating cost and
significant business taxation
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 5
A Closer Look at
State and Local
Taxes
3 taxes applicable to cannabis sales in San Rafael:
•State excise tax
•Measure G cannabis tax
•Local sales and use tax
Tax Type Tax Rate
San Rafael Cannabis Tax –
Delivery 4%
Combined Sales and Use Tax 9.25%
State Cannabis Excise Tax 15%
Total Tax Rate as of
November 2022 28.25%
Cannabis businesses also pay federal income taxes but are
not eligible for most of the deductions that other
businesses can receive.
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 6
How We
Compare to
Other Cities
Jurisdiction Cannabis Tax Rate for Retail and Delivery
San Francisco
City/County Suspension until 2023
City of Berkeley 5%
City of Santa Rosa 3%
City of Cotati 3%
City of Vallejo 7%
City of Sacramento 4%
City of Oakland
5%, for business with revenues over $1.5M
General non-equity 4% for $750-$1.5M, 5% for
$1.5-$5M
City of Walnut Creek No adult recreational delivery permitted
City of Fairfield 6%
City of Petaluma No local cannabis tax
City of Marysville 3%
City of Long Beach 8%
City of San Diego 8%
City of Novato “Community benefit agreements”of 1.5% to 4%
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 7
Scenarios
•The City Council’s ad hoc cannabis
subcommittee and staff evaluated several
scenarios, including:
•Reduction of the tax for all four license
types
•Different percentage reductions
•Delayed payment plan to alleviate the
immediate burden but no tax change
•A tiered rate based on gross receipts,
similar to the structure in Oakland
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 8
Why Delivery
•San Rafael’s cannabis delivery businesses currently pay the highest
City cannabis tax rate, they also experience the largest effects of the
excise tax.
•After running internal scenarios and gaining input from community
partners it was found that the most impactful and immediate relief would
be felt through temporary Cannabis Tax relief for delivery businesses.
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 9
Potential Fiscal Impact to Services
•The City spends $150,000 annually
on staff time and technology for the
cannabis program
•$200,000 annually is intended for
the Alternative Response Team
(ART)
•Between the $150,000 in ongoing
program expenditures and $200,000
for ART, this action would require a
General Fund subsidy for existing
programs of $100,000 annually
At 4% Tax At 2% Tax
Revenues $500,000 $250,000
Expenditures $(150,000)$(150,000)
Alternative
Response Team
$(200,000)$(200,000)
Net Income (Loss)$150,000 $(100,000)
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 10
Staff Recommendation
Staff recommends the Council
adopt the resolution setting a
lower cannabis industry tax rate
for cannabis delivery businesses,
for the period of January 1, 2023
through December 31, 2024.
City Manager’s Office
Cannabis Tax
November 7, 2022
www.cityofsanrafael.org
Slide 11
Questions?
