Are Oakland’s Cannabis Taxes Too High?

Local trade association founder James Anthony is doing all he can to sound the alarm.

When asked to describe the city of Oakland’s approach to taxing cannabis businesses, James Anthony opts for a colorfully blunt analogy.

“They insist on boiling the frog backwards,” Anthony explains. “Their fucking idea of how to boil a frog is to get the water boiling, fling that poor little bastard in there, and tell him that it’s OK because you’ll turn the heat down in a couple of years.”

In this case, the frog is any cannabis business operating in Oakland. The boiling water? That would be the city’s 10-percent tax on gross receipts for adult use sales — the highest such rate in California. (San Francisco’s voters approved Proposition D last fall, which caps rates at 5 percent, while Santa Rosa’s rate cap is even lower at 3 percent.)

The reason for this profound discrepancy stretches back nearly a decade. In 2010, Oakland passed a ballot measure that set the current rates of 5 percent for medical and 10 percent for adult use. At that time, adult-use cannabis was still a hypothetical. However, once Proposition 64 went into effect on Jan. 1, 2018, its impact became very real.

Before James Anthony formed Oakland Citizens for Equity and Prosperity (OCEP), he served as an attorney with the city of Oakland.

“I was a nuisance prosecutor,” he says of his former career. “I went after slumlords and liquor stores and crack houses.”

In 2003, California passed SB 420, which further defined the state’s medical-marijuana program. Prior to SB 420, Anthony says that the city of Oakland largely ignored the 20 or so medical dispensaries operating Uptown. Feeling a bit disillusioned, Anthony left his position with the city in 2006 to consult for the cannabis industry. Eleven years later, OPEC was born.

“Our name sounds like a political action committee,” he says, “because that’s what it was originally intended to be.”

Prior to its identity as a trade association, OPEC sought to overturn an Oakland ordinance mandating a three-year residency period for any cannabis permit holders. When Anthony realized OCEP would not have to sue the city, he quickly turned the group’s attention to lowering the 10-percent adult-use tax before recreational sales went into effect.

Nearly two years later, that continues to be OCEP’s primary objective. Some of the hurdles Anthony has faced along the way are almost comical in their absurdity.

“At one point,” he recalls, “the city attorney informed everyone that the ballot measure Oakland had passed in 2010 was written kind of funny. He said it gave [the city council] the power to lower the 5-percent medical tax, but not to lower the 10-percent non-medical tax.”

For Anthony, the message couldn’t be simpler: Lower the gross-receipts tax or prepare for a mass exodus. With neighboring cities offering substantially lower tax rates — and without the tiered structure — Anthony feels that Oakland is doing everything wrong in terms of giving its cannabis operators a reason to stay.

Some hope has arrived in the form of Oakland City Council members Dan Kalb and Rebecca Kaplan. They both seem receptive to OCEP’s concerns.

On May 20, the City Council voted to lower the gross-receipts tax for cannabis businesses making $500,000 or less annually from 10 percent to a mere 0.12 percent. It’s certainly a promising start, although Anthony is quick to point out that any business that crosses the $500,000 threshold by even a dollar will still find themselves stuck with a massive tax bill. It also means that general permit holders tasked with incubating equity operators in Oakland may soon pull up their stakes. The way the city’s tax rates are currently structured, it almost feels like success is punished rather than rewarded.

Eschewing any amphibian metaphors, Anthony doesn’t mince words in offering his outlook on the future of Oakland’s cannabis industry should nothing change.

“Why the fuck would you come to Oakland with a non-retail business and be killed by these gross receipts taxes?” he asks. “What we’re protesting is a tax policy that is also going to destroy equity businesses and cripple or drive their general partners out of business or at least out of Oakland. If the generals don’t make it, they can’t incubate anybody.”

He also has some parting words for anyone who might be in a similar situation.

“In retrospect,” he says, “I now see that you should never miss a chance to sue a bureaucracy because they will screw you passively any way they can.”

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