CANNABIS TAX OPTIONS City Council Meeting—February 5, 2018 Kim Espinosa, Planning Manager John Bliss, President SCI Consulting Group

ACKNOWLEDGEMENTS Thank You to Merced’s “Team Cannabis”: SCI Consulting Neil Hall Arcelia Herrera John Bliss City Manager Steve Carrigan Assistant City Manager Stephanie Dietz Assistant City Attorney Kim Flores Director of Development Services Scott McBride Former Police Chief Norm Andrade Planning Manager Kim Espinosa  Planning & GIS Staff Michael Hren Julie Nelson Michael Machado Everyone Else Who Contributed

Overview of tonight’s meeting How Did We Get Here? (Background) Cannabis Tax Options Public Comment City Council Direction

CANNABIS TAX OPTIONS

Cannabis TAX GoALS Taxes for New Revenue (Fees for Full Cost Recovery) Straightforward to administer Optimal revenue Address black market Address other competitors Address dynamic market place

Cannabis TAX Approach Council to consider a tax ordinance Levied on the seller of goods or service providers Levied on all steps in the supply chain Will not affect local sales, state taxes, property tax rates, etc.

Tax Options - Methodology Gross Receipts Tax Straightforward, revenue scales with sales Less predictability revenue Recommended for Retail Per Square Foot Tax Predictable revenue, protection against crop loss Recommended for Cultivation and Manufacturing Hybrid – Gross Receipts and Per Square-Foot

EXAMPLES Modesto (Gross Receipts) Cannabis Business Tax of Up to 10% of gross receipts of each business. Approx. $1 million in annual revenue for General City Services, including neighborhood safety, maintaining parks and recreation, and job creation. Coalinga (Square Foot) An Annual Tax of $25.00 per square foot for the first 3,000 square feet and then $10.00 per square foot for the remaining space utilized in connection with each commercial marijuana operation. Marysville (Hybrid) Cannabis Business Tax at a rate up to 15% of gross receipts for the licensed sale of medical and non-medical marijuana, and up to $25 per square foot on the cultivation of cannabis by licensed growers Estimated to generate $650,000 annually to fund General City Services Annual adjustments by Consumer Price Index (CPI).

CANNABIS Tax MeasureS in CA Voting Date Results November 2017 (General) 7 passed, no fails – 66.2% to 82.2% June 2017 (Special) 1 passed, no others – 79.2% November 2016 (General) 39 passed, 1 fail – 51% to 83.1% November 2016 (Special) 1 fail, no others – 62.6% June 2016 (General) 3 passed, 1 fail – 65.2% to 81.7%

Merced Cannabis tax options (SCI) I. Retail SCI Recommends Gross Receipts Medical Max Rate of: 7%, 3% Initial Implementation Non-Medical Max Rate of: 10%, 4% Initial Implementation  

Merced tax options (SCI) (cont.)   II. Manufacturing SCI Recommends Gross Receipts Sq ft* Hybrid Medical and/or Non-Medical Max rate of: 10%, 4% Initial Max rate of: $25.00, $7.00 Initial * Applies to actual manufacturing floor/area, excludes bathrooms, hallways, etc.

merced tax options (SCI) (Cont.)   III. Cultivation SCI Recommends Indoor Gross Receipts Sq ft** Hybrid Medical and/or Non-Medical Max rate of: 10%, 4% initial Max rate of: $25.00, $7.00 initial Nurseries Max rate of: 2%, 1% Initial Max rate of: $4.00 $0.50 Initial Max rate of: $3.00, ** Should be based on cultivation area (where any cultivation activities take place as defined by State) and excludes hallway, break rooms, etc.

MERCED tax options (SCI)(Cont.)   IV. Distribution SCI Recommends Hybrid of Both Gross Receipts Square Feet Medical and/or Non-Medical Max rate of: 10%, 2% Initial Implementation Max rate of: $5.00, $1.00 Initial Implementation V. Testing SCI Recommends Max rate of: $1.00 $0.25 Initial Implementation

Steps to Ballot Measure Ballot Measure Development City Council Direction on Ballot Timing City Attorney and Consultant Develop Ballot Language City Council Approval of Tax Ordinance/Ballot Measure Public Outreach & Engagement Develop Informational Materials Create Distribution Strategy and Infrastructure Public Education, Social Media, Press Engagement

Questions

PUBLIC COMMENT

CITY COUNCIL DIRECTION

Timeline for a june Ballot January 2018 January 16, 2018 – Review of preliminary tax options and input – Direction from City Council Organize non-governmental campaign committee February 2018 February 5 or 20, 2018 – City Council consideration of language for Tax Ordinance February 27, 2018 – Last day to submit ballot question, full tax text, and impartial analysis to the Registrar of Voters March 2018 March 14, 2018 – Deadline to amend or withdraw a measure Public information on Measure (Continues through Election) April 2018 April 6, 2018 – Ballot mailing begins June 2018 Community vote on June 5, 2018