Cathedral City will not be lowering its retail tax for cannabis, despite local businesses imploring the city to do so.
The City Council of Cathedral City considered potential changes to the city’s cannabis regulations and taxes on Wednesday. The council indicated it did not support lowering the cannabis retail tax, three weeks after cannabis business owners spoke out against the taxes for being too high during an April 20 special meeting.
Local cannabis businesses must pay a 10% retail tax on their gross proceeds. Palm Springs, Palm Desert and Desert Hot Springs charge the same amount, while Coachella charges the least in the Coachella Valley at 6%.
Many local cannabis business owners have advocated for lower cannabis taxes, arguing that the rates are detrimental to the industry’s presence in Cathedral City. Taxes being too high have been a common complaint in the cannabis industry locally and throughout the state.
gov. Gavin Newsom stated in January he planned to reform the state’s taxes on cannabis. Lawmakers are currently working on proposals that could do just that as soon as summer, according to Politico.
But cannabis tax reform has been difficult to achieve due to concerns surrounding revenue loss. Cathedral City received $4,971,001 in cannabis taxes last year and could lose $150,000 in retail tax revenue per 1% deduction, according to a city staff report.
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Mayor Ernesto Gutierrez said the city has hired employees depending on cannabis tax revenue. He said he is not ready to lower the retail tax, unless the council stated what it was willing to cut to make up the loss.
“Now, if we were to consider lowering taxes on the cannabis industry we must also consider, by the same percentage, what positions are we willing to let go from our employees,” Gutierrez said. “Are we going to let go a couple of police officers? Are we going to lay off a couple of firemen or someone in the building department?”
Council member Raymond Gregory said the cannabis retail tax rate in the region remains at 10%. He supported no change on retail tax.
“One could argue we could be a leader in lowering it but, you know, it would seem like that’s kind of a race to the bottom and the public expected to have some kind of benefit when they approved the use of cannabis,” Gregory said .
But Councilmember Mark Carnevale said the local cannabis industry is overtaxed.
“I believe they got to be treated like a regular business — whether it’s (like) a shoe store, what have you. But I really think they’re reaching out,” Carnevale said. “They’re saying … they need some help. I think we should oblige them.”
He added he would support no retail tax for six months, or lowering it to around 5%. Rich Eaton, who owns the Vault Dispensary in Cathedral City, had proposed for a six month tax break last year but did not receive the council’s support.
Cathedral City also has a cultivation tax of $15 per square foot and a manufacturing tax of $0.05, $0.10 or $0.40 per gram based on the type of cannabis concentrate.
While Cathedral City applies its cultivation tax to the entire facility, some cities only apply their cultivation tax to the canopy spaces used to grow product. Coachella, Palm Springs and Palm Desert apply their manufacturing tax to gross proceeds, while Desert Hot Springs does not have a manufacturing tax, according to the city staff report.
The council gave direction to city staff to look into exempting areas not used for cultivation from the cultivation tax and for further discussion on manufacturing tax, according to City Manager Charlie McClendon.
“(Manufacturing tax is) something that we’re not going to be able to very adequately compare to other cities because most of them, as I indicated, are based on the gross proceeds tax so … by doing it by the gram or the piece we’re already different,” McClendon said.
“But we can take a look at what the effect of that might be and industry people will actually have to help us in terms of what do they produce in those different categories,” he added.
There was no vote on cannabis regulations and taxes on Wednesday, as the council discussed the topic as a study session item.
What changes are the council considering for the city’s cannabis regulations?
While the council did not support lowering the city’s cannabis retail tax, there are some potential changes to the city’s regulations on the horizon. City staff have drafted an ordinance based on changes suggested by council members.
This includes allowing cannabis products to be visible to the public, though businesses will be prohibited from using advertising that could appeal to children. Cathedral City could also remove the requirement for a 250-foot setback from East Palm Canyon for cannabis businesses.
Other changes include updating language in the city’s municipal code, and removing sections that are no longer needed. For example, the definition for “good cause” in denying a license may be modified to mean someone was “cited for” violating provisions of the law rather than assuming they were guilty by saying they violated provisions of the law.
The council had previously indicated support for allowing outdoor lounges for cannabis businesses, though it raised concerns about the odor. McClendon said the city has adequate regulations for odor control in place.
But Gregory said the city should reexamine odor control, not just rely on the code already addressing it.
“Because even if (the code) generally covers it, it would seem to make such a thing successful, because that’s what we’re trying to do, that we may have to set some more specific requirements,” Gregory said.
The council majority supported potentially allowing outdoor consumption lounges in industrial zones on Wednesday. Mayor Pro Tem Rita Lamb said the city has to take baby steps if it wants to encourage businesses to be successful.
“I agree that limiting the outdoor lounges to particular zoning is the best way to go forward with this,” Lamb said. “Just sitting on the council for the time that I have, going all out on something and then if it doesn’t work out and there are negatives … taking it away from people is a very destructive way to build community.”
The council will consider allowing outdoor lounges for cannabis businesses at a future date. It will be a separate vote from the other proposed changes to cannabis regulations, according to McClendon.
Ani Gasparyan covers the western Coachella Valley cities of Desert Hot Springs and Cathedral City. Reach out to firstname.lastname@example.org.