Memorandum

TO: HONORABLE MAYOR AND CITY COUNCIL
FROM: Deanna J. Santana
SUBJECT: MARIJUANA BUSINESS TAX BALLOT MEASURE

SUPPLEMENTAL

The purpose of this supplemental memorandum to is to restate and further clarify staff’s discussion in the original staff report, dated July 23, regarding the City Council’s ability to adjust the marijuana business tax rate in the event that a marijuana business tax measure is approved by voters, as well as transmit a summary report on themes and trends regarding the taxation of marijuana businesses collected at the July 20, 2010 Medical Marijuana Community Meeting. It should be noted that staff has prioritized the issue of taxing marijuana businesses for developing the June 20 community input summary, given that this issue will be considered on August 3 by the City Council. As such, staff plans to transmit an additional summary report on the trends and themes on the other topics of interest that were discussed at the July 20 Community Meeting before the City Counci! Study Session planned for this fall.

Marijuana Business Tax Measure

Staff’s recommendation provides the City Council with the flexibility to impose a tax at the maximum rate of 10% of gross receipts on all marijuana businesses if approved by a majority of the voters on November 2. State law requires that any increase, extension or expansion of a tax requires voter approval. However, the reduction of a tax does not require voter approval. Therefore, if a majority of the voters on November 2 approve the marijuana business tax at the rate of 10% of gross receipts, the City Council can subsequently reduce the tax rate at any time. The Council could also subsequently create a tiered rate by reducing the tax rate for medical marijuana businesses specifically.

Staff’s recommendation is strategically developed to allow the City Council maximum flexibility absent an adopted regulation program and/or knowledge of the voter outcome Of Proposition 19. This approach grants the City Council options when more complete information is available for its public policy development following the November election.

July 20 Medical Marijuana Community Meeting

On Tuesday, July 20, 2010, staff held a public community meeting at Roosevelt Community Center to present key features of the medical marijuana ordinances and a Marijuana Business Tax ballot measure.

Over 100 people attended the two-hour meeting. Unlike the June 7, 2010 community meeting at City Hall, where public discussion and input collection was conducted in a large group setting with speakers providing individual comments; the July 20 meeting was structured differently to
allow participants to self-select a topic of interest, and provide input in a small workshop setting. Below is the list of key topics that were selected as the key discussion points based on demonstrated public interest. It should be noted that members of the public were not limited to these topics only; and, they had the opportunity to express views/opinions on other topics of
interest.

1. Registration Process & Requirements: 10 Collectives, Priority Order, 1 Year Registration Term, Registration Fee, etc.
2. Operating Requirements: Safety & Security, Day & Hours of Operation, Owner/Management Requirements, Packaging, Maintenance of Records, etc.
3. Taxing Marijuana Businesses: Ballot Measure, Tax Rate Policy Options, etc.
4. Land Use Policy: Sensitive Uses & Distance Requirements, Cultivation, Public Noticing, etc.

At the end of the small group discussions, each group had the opportunity to report out to all participants the key themes and questions that emerged from their discussion. Below are some summary comments about the key themes regarding taxing marijuana businesses:

• Medical marijuana should not be taxed, given that it was expressed that the taxation of medicine is morally wrong. Prescription drugs and botanical herbs were given as an example of types of medicines that are not subject to tax.
• The City’s proposed tax rate should be based on strong logical and rationale, and be set at not more than 2%; 0% and 0.5% rates were also suggested.
• There should be a two-tiered tax structure in which tax rates for medical and non-medical marijuana would be set at different rates.
• City Marijuana Business Tax coupled with the already existing State sales tax and potential City Registration Fees would cause the prices of medical marijuana to rise for patients, therefore driving patients to purchase their medicine in the illegal marijuana market.

/s/
DEANNA J. SANTANA
Deputy City Manager