Cannabis Tax Opposition Mounts

Why are some local officials and organizations eager to see Prop. D go down?

As expected, outgoing Supervisor Malia Cohen’s measure to levy a gross-receipts tax on local cannabis businesses comes before San Francisco voters on Nov. 6. Not surprisingly, efforts are already underway to stop Proposition D.

If passed, the measure would tax retail cannabis shops at a rate of 2.5 percent on their first $1 million in revenue (with the first $500,000 exempted), starting in 2021. Any subsequent revenue above $1 million would be taxed at a rate of 5 percent. For non-retail cannabis licensees, the rates are notably lower: 1 percent for the first $1 million (again, the first $500,000 is exempt) and 1.5 percent for subsequent revenue. At present, no other business entity in San Francisco pays gross receipts tax at a rate higher than 0.56 percent.

Opponents fear that even with three years to prepare, such additional costs could be detrimental to an industry still finding its footing in the regulated market.

“Medical cannabis patients are taxed too much as it currently stands,” says David Goldman, president of the Brownie Mary Democratic Club. “Adding this gross-receipts tax will drive more people back to the unregulated, illicit market.”

On Wednesday, Sept. 12, Goldman invited a number of supervisor candidates to speak with Brownie Mary Club members and offer their positions on Prop D. Among them were District 6 hopefuls Christine Johnson and Sonja Trauss, who have both come out against the measure.

“San Francisco voted overwhelmingly for Prop. 64 to legalize recreational cannabis,” Johnson notes. “However, to fully stamp out the black market, we need to give the legal industry a chance to mature. Prop. D would put us in danger of killing the legal cannabis industry before it really starts, through over-taxation.”

Trauss shares her opponent’s concerns that higher taxes may reduce legal sales.

“I think that Prop. D will be devastating for the fledgling cannabis industry in San Francisco,” she says. “Cannabis businesses are already struggling to pay taxes. Logistically, they have to pay in cash. This tax will punish them for operating legitimately. Seventy-four percent of San Franciscans voted to have access to legal recreational cannabis. This tax is contrary to the will of San Francisco voters, because it will drive cannabis businesses out of business or back to the illegal market.”

Such opposition isn’t without merit. At present, a San Francisco retail cannabis business already pays taxes at the state level. While San Francisco’s decision to add a local tax has always been a matter of when and not if, many people hoped city officials would choose to let the market stabilize first. It’s unlikely that big-name dispensaries will shutter, but the question is whether mom-and-pop shops and manufacturers will be able to keep up.

Speaking with SF Weekly in July, Cohen conceded that, for some in the industry, the issue of taxes is simply never going to fly.

“I’m not trying to shove a tax down people’s throats,” she said. “I understand that there is a constituency that is just automatically against a tax. But as a legislator, I think that’s an unrealistic position.”

In response to this feature, Sup. Cohen’s Legislative Aide Sophia Kittler notes that Prop. D is actually structured ” to give ‘mom and pop’ shops a break” and points to data from San Francisco’s City Controller, which finds that 46 percent of all dispensaries gross less than $1 million, and combined earn only 3 percent of the revenue.

The matter of taxes on the cannabis industry has its detractors even within the current Board of Supervisors. In an 8-3 decision, Sups. Jane Kim, Hillary Ronen, and Rafael Mandelman all voted against placing Prop. D on the November ballot (offices for all three did not immediately respond to requests for comment). Other local government entities are also beginning to weigh in.

Juliana Bunim, vice president of strategic communications, San Francisco Chamber of Commerce, sees Prop. D as a “double tax” on the industry.

“By singling out this emerging industry,” Bunim says, “this extra tax will discourage cannabis businesses from entering the fully regulated legal market.”

Another ally in the efforts to defeat Prop. D is Vince Courtney of the San Francisco Labor Council (as a body, the San Francisco Labor Council voted to endorse Prop D).

“We strongly believe that it’s irresponsible to over-regulate an industry that has demonstrated [a] willingness to meet community workforce objectives through state-registered apprenticeships and pre-apprenticeship in collaboration with the city,” Courtney emphasizes. The willingness of industry leadership “to explore approaches to ensuring appropriate labor standards for workers from communities decimated by the failed war on drugs should be met with a scalpel, not a hammer.”

With San Francisco’s general election still six weeks away, the rhetoric concerning Prop. D will likely only increase as the city’s attention turns to the five local measures currently slated for the ballot. How much a given candidate’s positions on the cannabis industry will affect their chances to take office remains to be seen, but it’s clear that in 2018, the days of elected officials opting out of the discussion are long gone.

Zack Ruskin covers news, culture, and music for SF Weekly. |  @zackruskin

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