The Lompoc City Council over the past two months has discussed the potential to bring several changes to the regulation of city cannabis ordinances.
Updates include a proposed increase in cannabis manufacturing and distribution taxes, which would require spending upwards of $1.24 million of cannabis-generated taxpayer dollars to create a Cannabis Oversight Committee consisting of an additional 10 new full-time employees. "Consulting contractors" also could be hired.
Additional discussions have revolved around the city's 6% cannabis retail tax — passed by voters in Measure D in 2018 — which defines who pays the tax and how that tax will reflect on sales receipts.
On June 1, the Lompoc City Council, working together in the spirit of compromise, voted unanimously to declare a local fiscal emergency that allows the city to hold a special mail-in-only election on Aug. 31. During that election, voters will decide whether or not to impose a new tax on cannabis manufacturing and distribution that would change the current flat fee structure authorized by voters in Measure D to a tiered tax determined by gross annual sales. The flat fee currently in effect imposes a $15,000 fee if net sales are under $2 million, and $30,000 if net sales are over $2 million.
After some debate and negotiation on language, percentages, fees and a start date for collection of tax should it pass, the council ultimately voted 5-0 to have residents vote on a tiered tax structure ranging from 0.5% to 2.5%. Should the new measure pass, a tax on the gross annual sales of both cannabis manufacturers and distributors would be imposed as follows:
- $10 million and under: 0.5%
- $10m - $25m: 1%
- $25m - $40m: 1.5%
- $40m - $55m: 2%
- $55 million and over: 2.5%
Should the measure pass on Aug. 31, the city would impose and begin collecting the new taxes after April 1, 2022, as negotiated by District 3 Councilman Dirk Starbuck. Should the measure fail, the flat fees authorized by Measure D would remain in effect.
Additionally, the election would allow voters to weigh in on another issue: allowing cannabis dispensaries to list the city’s 6% retail cannabis tax on sales receipts. Its approval would change the current procedure that incidentally creates a “tax on a tax.” This, according to the council, would save consumers some pocket change.
The lead-up to the council’s unanimous vote was not easy to reach. While it may seem like a no-brainer to impose high tax rates on cannabis companies that make potentially millions of dollars, it is not necessarily logical. While not all cities regulate or allow for cannabis businesses to operate within their jurisdictions, those that do must stay at competitive advantage to attract and retain businesses by maintaining competitive tax rates.
It must remain within sight that Lompoc is a bedroom community with many residents working out of town; it is not located next to a major freeway and the town provides a smaller, qualified workforce than larger communities. Lompoc is attractive to manufacturers and distributors, among other canna-businesses, because of its current low-tax structure that has stimulated a total of 52 business applications — despite the global pandemic.
Such businesses bring more than just tax dollars. They provide critically needed jobs that stimulate our local economy’s financial health. That is why the council’s 5-0 vote was challenging. No elected representative wants to take actions that could push businesses to go elsewhere. On the flip side, no elected representative wants to be criticized for not pushing enough.
While a sliding scale of 0.5% to 2.5% tax may be competitive locally with comparative local tax rates averaging about 3% in Santa Barbara and San Luis Obispo counties, communities like Grover Beach and Guadalupe may soon offer lower rates, which could hinder Lompoc’s advantage further.
With regard to a proposal from city staff to create a 10-person cannabis oversight committee, it is likely the council will reject the $1.24 million proposal and consider a significantly smaller and cheaper route due to public outcry. To that I say, more Flower To The People!
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