L&L Workshop #3 on the
EPS Cannabis Study:
Fiscal & Economic Matters
Meeting Date: April 19, 2022
Presented by the Office of Cannabis Management
Context for Cannabis
Revenue & Expenditure Data
• Understanding the data and its interconnectedness can assist in making recommendations on local cannabis taxes:
• cannabis revenues and expenditures
• regional taxes
• state taxes
• possible changes in tax at the state and federal levels Cannabis Revenue & Expenditures:
Permit Fees
• Permit fees
• Annual permit fees range from $2,590 to $36,800,
depending on type and size of business
• CORE businesses not charged at this time
• Estimates for fiscal year (FY) 2022/23 are $3.612 million Cannabis Revenue & Expenditures:
Permit Fee Expenditures
• Permit fees fund
• Operation and staffing of the cannabis administrative and enforcement work to regulate the cannabis industry
• Partially pay for a youth cannabis education and prevention program
• Total cannabis program expenditures for FY2022/23 are estimated at $5.731 million
Cannabis Revenue & Expenditures:
Permit Fee Expenditures – Program Staffing
• 33 Cannabis Program positions funded
• 9.0 full-time equivalent (FTE) positions in the Office of Cannabis Management
• 1.0 Auditor in the Auditor’s Office for continuous cannabis monitoring/auditing
• 7.0 FTE in the City Attorney’s Office (CAO)
• 3.0 FTE Code Enforcement Officers in the Community Development Department (CDD)
• 2.0 FTE Building Inspectors in CDD
• 1.0 FTE Customer Service Supervisor in the Finance Department • 2.0 FTE Fire Prevention Officers in the Fire Department • 8.0 FTE in the Police Department (PD)
Cannabis Revenue & Expenditures:
Illegal Cultivation Penalties
• PD issues $500/plant penalties for residential and commercial illegal cultivation
• Total penalties collected - $12.586 million
• These funds help cover costs of the overall program operation, including
• Illegal cultivation enforcement
• Youth drug prevention and education program
Cannabis Revenue & Expenditures:
State Grants for Cannabis Equity
• Received over $10 million in competitive cannabis equity grants from the state since 2019
• $6.8 million disbursed
• Used to provide grants, reimbursements, and no-interest loans to CORE members
• $4.351 million awarded for 2022, but funding not received yet Cannabis Revenue & Expenditures:
State Grants for Annual Licenses
• Received $5.787 million as part of State’s efforts to transition State provisional licenses to annual licenses
• Navigator to assist applicants and licensees in obtaining annual licenses
• Rebates/grants for required security upgrades
• Permit streamlining
Cannabis Revenue & Expenditures:
Youth Cannabis Prevention & Education Funding
• Office of Youth Development (OYD) received a $999,555 grant of state cannabis tax funding for the development and operation of a youth cannabis prevention and education program
• California Board of State and Community Corrections Proposition 64 Health & Safety Grant Program
• OCM has partnered with OYD to add $250,000/year to further expand the reach and impact of the youth cannabis prevention and education program
Cannabis Revenue & Expenditures:
Business Operations Permit (BOT)
• Sacramento Cannabis BOT is 4% of gross receipt
• FY 2016/17 - $4.825 million (dispensaries only)
• FY2017/18 - $6.881 million
• FY2018/19 - $11.481 million
• FY2019/20 - $14.818 million
• FY2020/21 - $25.397 million
• FY2021/22 - $15.489 million (collected as of 2/28/22) Cannabis Revenue &
Expenditures:
BOT by Business Type
BUSINESS TYPE FY21 *FY22
Cannabis Cultivation BOT $ 4,651,379 $ 3,670,435 Cannabis Delivery BOT $ 3,275,471 $ 2,063,374 Cannabis Dispensary BOT $ 10,374,791 $ 5,900,545 Cannabis Distribution BOT $ 5,774,126 $ 3,011,991 Cannabis Manufacturing
BOT $ 919,292 $ 503,633
Cannabis Micro Business
BOT $ 174,202 $ 155,158
Cannabis Testing BOT $ 227,405 $ 184,060 Grand Total: $ 25,396,666 $ 15,489,195
* FY22 taxes paid through 2/28/22
Cannabis Revenue & Expenditures:
BOT Expenditures
• Cannabis BOT revenues are part of the City’s General Fund and are expended on general City operations
Cannabis Revenue & Expenditures:
EPS Review of Local Cannabis Taxes
• Sacramento’s 4% BOT is not out of line with local cannabis tax rates in the region
• No need to “race to the bottom” on taxes
• Factors to monitor:
• Tax changes at the state level
• Tax rates for local counties and cities that decide to regulate cannabis
Cannabis Revenue & Expenditures:
EPS Review of Local Equity Funding
• Case studies show that most jurisdictions in California and other states fund their cannabis equity programs from cannabis taxes, permitting fees, industry payments in exchange for permit fee or tax relief, and similar models.
• Sacramento could review these methods and use one or more to provide permanent funding for CORE Program services.
Cannabis Revenue & Expenditures:
State Taxes
• 15% excise tax on retail cannabis purchases
• Tax of $10.08 per dry-weight ounce of cannabis flower, $3.00 per dry-weight ounce for leaves, and $1.41 per ounce for fresh cannabis plants.
• Cannabis purchases also incur a state and local sales tax of at least
7.25 percent
Cannabis Revenue & Expenditures:
State Cannabis Tax Legislation Pending
• Offering a variety of tax changes: temporary tax relief, reduction in taxes for certain business types or for all, changes in who remits taxes
• SB 1281 (Bradford)
• SB 1336 (Weiner)
• SB 1074 (McGuire)
• AB 2506 (Quirk/Lackey)
• AB 2792 (Rubio/Garcia)
Cannabis Revenue & Expenditures:
Federal Cannabis Legislation Pending
• Decriminalize cannabis, eliminate Internal Revenue Service’s (IRS) Code (IRC) section 280E, and defer to States on prohibition and regulation • Representative Nancy Mace’s State Reform Act Bill
• 3% Federal excise tax for law enforcement, small businesses, and veterans’ mental health
• Senator Chuck Schumer’s Cannabis Administration and Opportunity Act • Tax percentage tier that starts at 10% in year one with yearly increases to 15%, 20% and 25%
• Owners with sales under $20 million would be eligible for a 50% tax credit Cannabis Revenue & Expenditures:
EPS Review of State and Federal Tax
• State taxes are negatively impacting the industry
• Both excise tax percentage and cultivation tax methodology need to be re-evaluated
• State taxes are impacting the underground cannabis market • Interconnectedness of state cannabis tax revenue and equity, childcare, youth, and drug prevention grant program funding • IRS 280E relief and banking are needed, but federal tax proposals are too high, particularly when layered on California and other states’ current cannabis taxes
Cannabis Revenue & Expenditures:
Staff Recommendation 1
• Monitor the tax-related legislation and regional tax rates to allow the City to make an informed decision on the issue, as warranted
Cannabis Revenue & Expenditures:
Staff Recommendation 2
• Consider positioning the City to allow greater flexibility to make future adjustments to the tax rates. These adjustments could include:
• Allowance for different tax rates for different cannabis business types
• CORE-specific tax relief for a period of time
• Tax relief for businesses that support cannabis equity Cannabis Revenue & Expenditures:
Staff Recommendation 3
• Consider identifying a permanent funding source for the CORE Program