San Diego Looks at Medical Marijuana Tax

Marijuana users in San Diego could soon be paying more for the drug if voters approve a local tax on the industry.

The plan, sponsored by City Council Member Mark Kersey, proposes a sales tax on all cannabis businesses. If Kersey succeeds with his ordinance, voters would decide the issue in a future election.

Kersey’s tax would start at 8 percent of gross sales, but the council could raise that amount to 15 percent. The revenue would pay for code enforcement, police, and marijuana regulation.

Taxation could fuel black market

Cannabis proponents said they were cautiously open to the idea but noted that excessive taxes could drive up prices, fueling the black market. Marijuana opponents sharply rejected Kersey’s bill, citing similar concerns about the black market and worries that taxes legitimize marijuana use.

California voters legalized medical cannabis in 1996. This November they will decide whether to allow the drug for recreation. If voters pass the Adult Use of Marijuana Act Nov. 8, adults over 21 could buy, possess, and use up to an ounce of pot. They could also grow up to four plants at home.

“With the whole landscape changing, now is probably a good time to have this conversation,” Kersey said. “Legalizing recreational use will increase demand, so I think it’s likely you’ll also see an increased demand for these kinds of city resources to monitor and regulate this industry.”

Acting in anticipation of legalization

Council President Sherri Lightner echoed Kersey.

“Many other California cities are adopting similar taxes on the sale of cannabis in anticipation of the use of recreational marijuana being approved statewide by voters in November,” Lightner said. “I believe this is a common-sense proposal that will benefit San Diego by generating additional tax revenue that can be used for major city needs such as public safety and infrastructure.”

In all likelihood, even if the tax initiative passes, it won’t apply to medical marijuana. The AUMA would bar the state and local governments from taxing medical sales. But if the AUMA fails at the ballot, Kersey’s tax would include medicinal cannabis.

San Diego marijuana tax could exceed 30 percent

San Diego would join Los Angeles, Oakland, and a handful of other California cities that tax marijuana businesses. Those taxes range from 6 percent to 15 percent of all sales. The AUMA would impose an additional 15 percent state tax on recreational pot. That means sales in San Diego could eventually come with a 31 percent tax – a sum likely to drive many users to the black market.

“[We are] currently extremely concerned about the pressure black-market dispensaries and deliveries are putting on city-licensed storefront cooperatives that are abiding by all regulations and bearing the expense that comes with it,” said Rachel Laing, a spokeswoman for United Medical Marijuana Coalition, an industry group. “The danger is that adding double-digit taxes could further advantage the black-market operators, driving the legal, tax-paying providers out of business.”

But Laing said her group believes it can negotiate a more reasonable local tax rate with Keresey.

“We’ve had constructive initial conversations with Council member Kersey’s office about this proposal,” she said. “As San Diego’s only legal, tax-paying cannabis business operators, our members have valuable insight and data that can inform the city’s framework for a tax, and thus far we’re optimistic they’ll take our input into consideration as they craft the ballot measure.”

Kersey said he’s open to changing his ordinance.

“This is all up for discussion,” he said.

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