Meeting Time: September 05, 2023 at 12:00pm PDT

Agenda Item

1. City Cannabis Business Operations Taxes Update and Options

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    Kevin McCarty about 1 year ago

    Tax relief for cannabis businesses in the City of Sacramento is essential, for CORE and non-CORE operators alike. The dispensaries which have served the people of Sacramento from the early medical days are not "big business" and, contrary to the narrative presented by OCM staff, have not had significant advantage but have endured DEA raids, extremely burdensome tax rates from the federal, state, and City government, and relentless competition from the unregulated / illicit market which pays no tax and is not lab tested for consumer safety.

    If the City wants to support the legal market it needs to provide tax relief by reducing the CBOT for all businesses and business types. It is manifestly unfair to reduce the tax rate only for some operators within a given category. CORE businesses are otherwise already supported by grant funds and zero interest loans -- it is not necessary to give a special tax rate. We are entitled to equal protection under the law as enshrined by the 14th Amendment of the U.S. Constitution, and setting special tax rates for particular businesses stands in stark violation of this principle.

    Please take this into consideration and help ALL of the legal cannabis industry in the City of Sacramento, and reduce the CBOT rate for every operator permitted by the Office of Cannabis Management.

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    Javier Hernandez about 1 year ago

    My name is Javier Hernandez, I am one of the founder and operators of Humble Root which is a Legacy, Social Equity Delivery Dispensary.

    I've seen the CORE program from it's inception and have received so much support from the program, not just in forms of grants and loans but in terms of face time and genuine care from the OCM team.

    Cannabis is an extremely tough industry to be in, the taxes being the heaviest burden. As Davina stated, social equity companies only makeup about 5% of revenue brought in by taxes. Although it doesn't seem like a lot, 4% gross taxes are the make a break margins for most businesses.

    This hurts businesses most who are just starting, getting open is just the starting line and we need continued support to grow the representation of social equity companies.

    Although I have been operating my business for 8 years I still stand here only owning my car and still struggling month to month.

    I've seen tens of millions of dollars filter through our hands and have not been able to build any wealth for my family, and this is due solely to the many taxes we are subject to. I want to build wealth for me and my entire staff but I feel like any chance at that is getting skimmed off by taxes.

    Not only do I fully support the reduction of taxes, but I think it's necessary to stop the crumbling of our social equity businesses who don't have investor money.

    Cannabis businesses are burdened with covering over 10% of our entire tax base, that is objectively high.

    A company such as ours, should not be paying more taxes than a multi billion dollar company like Walmart. Let's put our money where our mouth is and prop up the black and brown community who needs the support so badly, by not only making the core program permanent but reducing our tax burden.

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    Jay Johnson about 1 year ago

    I support the phased tax model for all Cannabis retailers and especially CORE businesses. I ask the council to review how many cannabis busines
    license renewals will not happen this year. Look into how many cannabis businesses are delinquent or behind on their city and CDTFA tax payments, there is a correlation between the two. Taxes are crippling this industry more so than any other factor. The black market is not taxed, regulated, or controlled and it is thriving in Sacramento and the the state as a whole. The best way to combat the black\illicit market is through logical common sense tax practices on the legal market. As a retail license holder I hear to often from customers that the taxes are pushing them away from us and back to the black market to find their medicine. As a license holder I often hear from my fellow industry friends that continuing in this industry under these tax codes and tax burdens is futile and non sustainable. I support the tax relief that is being proposed and urge the council to do the same before taxes kill this golden cannabis goose.

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    Maisha Bahati about 1 year ago

    I support the phased tax model for CORE buinsesses!

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    Jim Keddy about 1 year ago

    Please see attached letter regarding Youth Forward's work on cannabis tax policy and our support for the Phased Tax Model for CORE businesses.

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    Philip Blurton about 1 year ago

    All About Wellness is here today to ask for help on the reduction of the CBOT and give our insight as a dispensary owner since, December 18, 2009.

    We have been thru a lot and that is why we are asking the city for help!

    In 2011 we were shut down by the federal government.

    We have been fighting the IRS over 280E since 2013. Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act.

    We helped write the ordinance to bring this opportunity to the City of Sacramento.

    Dispensaries are the only business in the chain of cannabis businesses not allowed ordinary deductions! Yet the City wants to tax dispensaries the most. Except for the Core dispensaries. How can two individuals or companies equal in every way be taxed at differently?

    You state:

    It is undeniable that the 30 CORE businesses holding cannabis business operating permits (BOPs) lacked the initial resources and generational wealth often accessible to their non-CORE counterparts.

    We started our business with a credit card and hard work! We did not have generational wealth!

    You state:

    The amount of CBOT from CORE businesses over the FY18/23 period was only 2.41% of all the CBOT remitted to the city. If the Phased Tax Rate model had been used for the CORE CBOT, there would only have been a reduction in CORE CBOT of 0.77% or $753k over that five-year period.

    This is not true you do not have the Core dispensaries open.

    We need to speak about Equality. The meaning of Equality “the state of being equal especially in status, rights and opportunity.”
    Our business is down 20% and this is without all the 10 core dispensaries open. With you allowing a different tax for one and not the other is not Equality.

    Your findings show other city’s have higher tax rates than Sacramento and some are less.

    You state:

    Although gross receipts often correspond to how well the business is doing financially or the size of the businesses, it is not always an indicator of business size or financial health.

    This so true, we need help with the tax rate we have in order to keep our businesses open.

    You share a tax model:

    This tax model preserves storefront retailers tax rates’ and reduces all others is an attempt to provide tax relief to the most businesses, while limiting the impacts to the CBOT remitted to the city. The above table shows that the Different Tax Rate model would result in nearly a 30% reduction in CBOT.

    Impact on General Fund and Measure L: Different Tax Rates for Different Cannabis Business Types. The nearly 30% reduction, or $6.726 million, would result in a loss of just over $4 million to the General Fund and approximately $2.69 million to Measure L funding, using FY21/22 figures.

    Please be reminded if the dispensaries are closed there will be no need for cultivation, distribution, manufacturing, microbusiness, and testing labs.

    You state:

    Given the City’s modest tax rate compared to the State’s excise tax and the impact of IRS requirements, it appears that pursuit of tax relief at the state and federal levels remains a viable option for the cannabis industry.

    We need Sacramento to be our first start in a viable option for our cannabis business.
    Please highly consider helping us and be equal to those who helped this City start these businesses that we are trying so hard to save!!!!!