Charles McClendon, City Manager, reported that the Cannabis Task Force met on November 29, 2021. At their meeting, the Task Force had a Cannabis Tax update and discussion, and they also discussed the requirement to obscure windows in retail businesses.
City Manager McClendon reported that during the discussion on the Tax Update, the Task Force primarily focused on cultivation taxes stemming from a request from a potential large cultivator to consider some type of tax relief. He indicated that the Task Force had a fairly lengthy discussion and came up with a number of ideas. The Task Force did not make a specific recommendation to bring to the City Council, they instead asked that a summary of the discussion be provided as follows:
• Redefining the taxable cultivation area to include only the canopy space. This would give a small break - probably about 10% - to existing as well as future cultivators.
• Developing a maximum square footage upon which to apply the tax. This would give a break to future large cultivators, but all existing cultivators are paying on their entire area - there is no cap.
• Reduce the overall rate from $15 down to some other amount. This would benefit all growers equally but would reduce revenue to the City. • It was noted that the smallest growers have less opportunity to spread their operating costs and there was some interest in a break for the small operators, including a reverse tier system.
• The tier structure used in Desert Hot Springs and Coachella was also noted as a possible solution for the large operators. The current average square footage among Cathedral City cultivators is about 6,000 square feet. • Delaying charging the tax until the crop is actually moved in. Currently the tax begins at Certificate of Occupancy (COO) and there is normally some down time before the business starts generating revenue. All current operators were assessed beginning at COO.
• Some type of rebate or true up to reflect the actual sale of the product. The current voter approved language requires a per square foot assessment.
City Manager McClendon indicated that the Planning Commission has recommended to remove the requirement to obscure windows in cannabis retail businesses. The Task Force recommended that staff explore whether or not there are any provisions in state law related to the topic and also noted that allowing visibility may allow for more creativity by the owner in designing their store front and there may be public safety advantages to allowing more visibility. City Manager McClendon stated that staff has confirmed that there are no state provisions regarding this requirement.
Kenneth Churchill, owner of West Coast Cannabis Club, thanked the City for being a leader in the cannabis industry. He expressed his concern with the retail tax rate in addition to all of the other taxes the cannabis industry is required to pay as well as the black market they are having to compete with. He requested the City Council offer some tax relief and lower the tax rate to 5%.
Scott Rusczyk, Coachella Valley Cannabis Alliance Network, encouraged the City to take some type of action to help the industry and offered their assistance.
Rich Eaton, The Vault, concurred with the comments that were made by Mr. Churchill.
He reiterated that he feels that it would be beneficial to eliminate the requirement to obscure the windows and would like to see consumption lounges allowed.
Charles McClendon, City Manager, indicated that the Task Force will be discussing outdoor consumption lounges at a later date.
Thomas Riddle, CEO of a large cannabis operation in town, requested a tax break for large cannabis operators as well as small operators.
Maria Scagliotti, indicated that she has resigned from the Cannabis Task Force. She stated that she has been encouraging tax reductions for quite some time as well as allowing outdoor consumption lounge. She announced that she is closing her business due to the lack of traffic and clientele willing to pay what they have to with the taxes as they are. She stated the dispensaries are the only cannabis business that can’t write off operating costs.
It was the consensus of the City Council to direct staff to move forward with discussions with the Cannabis Task Force with regard to the items that have been brought up during this meeting so they can formalize a recommendation for the City Council to consider.
Staff will provide an update of their progress to the City Council within 3 months.