Cannabis Tax Ordinance Finance Committee/City Council February 26, 2018

Cannabis Tax Ordinance Overview of Proposed Ordinance Review Fiscal Analysis Review Cumulative Tax Calculation Tax Policy Discussion Declaration of Fiscal Emergency Next Steps

Proposed Ordinance 5.28.050 Definitions 5.28.060 Taxes Initial Rates Maximum Rates Council Increases Rates CPI Increases 5.28.070 Quarterly reporting to Finance (Tax Administrator) 5.28.110 Penalties and interest for late payment 5.28.150 Administration 5.28.160 Appeals 5.28.200 Audits 5.28.220 Does Not Authorize Unlawful Business

Tax Policy on Cultivation Square footage based on approved permit Reduction for unused square footage, partial year Square footage of cultivation, not of building Deferred payment to match cash flow associated with harvest Predictable, stable revenue stream for financing on-going City costs

Rate of Tax High enough to generate proceeds to offset costs Low enough to avoid over-taxing and ensure sustainability Ability to match tax rates with neighboring jurisdictions Encourage licenses in short supply Flexibility options City Council may increase or decrease rate Index for inflation Minimum and Maximum rates

Proposed Initial Rates LICENSE TYPE RATE Cultivaton: Indoor, artificial lighting $7.00 SF Cultivaton: Indoor, mix lighting $4.00 SF Cultivaton: Outdoor $2.00 SF Cultivaton: Nursery $1.00 SF Testing Laboratory 1% GR Retailer 4% GR Distribution 2% GR Manufacturing 2.5% GR

Fiscal Analysis - Cultivation Total Sq. Ft. # of Businesses $7 $9 $10 Permit 1 5,000 3 15,000 $105,000 $135,000 $150,000 Permit 2 10,000 30,000 $210,000 $270,000 $300,000 Permit 3 22,000 66,000 $462,000 $594,000 $660,000 $777,000 $999,000 $1,100,000

Fiscal Analysis - Manufacturing Gross Receipts # of Businesses Total GR 4% 5% 6% Scenario 1 $2.5m 2 $5.0m $200,000 $250,000 $300,000 Scenario 2 4 $10.0m $400,000 $500,000 $600,000 Scenario 3 6 $15.0m $750,000 $900,000

Fiscal Analysis - Retailers Gross Receipts # of Businesses Total GR 4% 5% 6% Scenario 1 $3.2m 2 $6.4m $256,000 $320,000 $384,000 Scenario 2 4 $12.8m $512,000 $640,000 $768,000 Scenario 3 6 $19.2m $960,000 $1,152,000

Fiscal Analysis - Distribution Gross Receipts # of Businesses Total GR 4% 5% 6% Scenario 1 $2.0m 2 $4.0m $160,000 $200,000 $240,000 Scenario 2 4 $8.0m $320,000 $400,000 $480,000 Scenario 3 6 $12.0m $600,000 $720,000

Fiscal Analysis – Testing Labs Gross Receipts # of Businesses Total GR 4% 5% 6% Scenario 1 $1.5m 2 $3.0m $30,000 $37,500 $45,000 Scenario 2 3 $4.5m $56,250 $67,500 Scenario 3 4 $6.0m $60,000 $75,000 $90,000

Fiscal Analysis - Combined Conservative Estimate - $1.47m Moderate Estimate - $1.86m Aggressive Estimate $2.14m

Cumulative Tax

Declaration of Fiscal Emergency Article XIII C, Section 2(b) of the California Constitution Declaration of Fiscal Emergency specifically related to the regulation and enforcement of the cannabis industry Must be unanimous vote of the City Council

Next Steps Update ordinance based on City Council direction Approved ordinance Adopt resolution declaring fiscal emergency Adopt resolution calling the election. Continue finalizing regulatory framework Tax measure appears on June 5th ballot