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RESOLUTION TO SET THE BUSINESS LICENSE TAX RATE FOR MEDICAL CANNABIS BUSINESSES OPERATING IN THE CITY PURSUANT TO CHAPTER 5.98 OF THE STOCKTON MUNICIPAL CODE
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RECOMMENDATION
It is recommended that the City Council adopt a resolution to set the business license tax rate for medical cannabis businesses operating in the City to $50 per one-thousand dollars in gross receipts, pursuant to Chapter 5.98 of the Stockton Municipal Code.
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Summary
On June 28, 2016, the Council approved Resolution 2016-06-28-1503-02 that authorized to place a measure on the November 8, 2016 ballot for voters to decide whether to increase the City’s medical cannabis business license tax rate. Measure Q was approved by 63.79 percent of City voters, and requires an increase in the business license tax on a medical cannabis business from $25 per one-thousand dollars in gross receipts to a minimum of $35 up to a maximum of $50 per one-thousand dollars in gross receipts. The proposed resolution would set the business license tax rate for medical cannabis businesses to $50 per one-thousand dollars in gross receipts.
DISCUSSION
Background
On June 28, 2016, the Stockton City Council placed two ballot measures on the November 8, 2016, General Election ballot that expanded the number of medical marijuana dispensaries authorized to operate in the City, authorized medical marijuana cultivation businesses, and increased the business license tax on medical cannabis-related businesses. Council approved Resolutions 2016-06-28-1503-01 and 2016-06-28-1503-02 to place these measures on the ballot by a 7 to 0 vote.
Measure P was approved by 55.35 percent of City voters, which expands the number of medical marijuana dispensaries authorized to operate in the City and authorizes medical marijuana cultivation businesses.
Measure Q was approved by 63.79 percent of City voters and allows the City Council to raise or lower the business license tax within a range of between $35 - $50, per one-thousand dollars in gross receipts of medical cannabis.
Measure Q amends the definition of "gross receipts" to broaden and simplify the application of the tax; define the term "Medical Cannabis"; and define the term "Medical Cannabis Business" to encompass a broad range of potential businesses, including dispensaries and cultivators.
Measure Q also amends Chapter 5.99 by updating the purpose and intent provisions; broadening the definition of "Marijuana Business" and clarifying that the application of the tax on recreational or other non-medical marijuana shall apply at such time that state or federal law, and the City Code, allow such use in the City.
Prior to the approval of Measure P, two medical marijuana dispensaries were authorized to operate in the City of Stockton. Their annual gross receipts are estimated to total $6.7 million cumulatively and generate $168,000 in business license tax revenue. The revenue is based on the tax rate of $25 per one-thousand dollars in gross receipts and in addition to the $30,000 operating permit required annually from each medical marijuana business.
Present Situation
Measure P will allow for two additional dispensaries, for a total of four, and up to four marijuana cultivations sites. There can be no more than four of each type of marijuana business in the city, and no more than two businesses per Council district. Measure Q implemented changes to the tax rate for marijuana businesses. The expanded number of businesses and increased tax rate are estimated to generate $1 million annually.
The recommended tax rate of $50 per one-thousand dollars will be levied on gross receipts of every medical cannabis business operating in the City of Stockton upon adoption of the proposed resolution.
The Stockton Municipal Code does authorize a business license tax on non-medical marijuana businesses of $100 per one-thousand dollars in gross receipts pursuant to Chapter 5.99 of the Stockton Municipal Code, but only as such businesses are authorized by State or Federal law and permitted in the City. Chapter 5.99, which established the “Marijuana Business” category and tax rate, was approved by City voters at the November 2, 2010, election. At the time, the tax established in Chapter 5.99 was proposed in response to California Proposition 19 (2010), the “Regulate, Control and Tax Cannabis Act”. Proposition 19 was defeated, however the tax imposed by Chapter 5.99 was drafted such that it would apply in the event of any subsequent change in law as relates to the sale of recreational marijuana. Therefore, it is now effective following the passage of Proposition 64 (the “California Marijuana Legalization Initiative”) adopted by voters of the State of California at the November 8, 2016, election. The State of California is also in the process of developing its regulatory scheme for non-medical marijuana businesses.
FINANCIAL SUMMARY
Medical cannabis business license tax proceeds will be placed in the City's General Fund and made available for any legal purpose. If approved, this Resolution will increase the business license tax on medical cannabis businesses from the current $25 per one-thousand dollars in gross receipts to the maximum tax of $50 per one-thousand dollars in gross receipts. The change in the business license tax may increase FY 2016-17 revenues by as much as $420,000 (for a partial year) and is expected to raise $1 million annually.