Published on March 11th, 2014 | by Greggory Moore0
Long Beach’s Proposed Medpot Tax: Legitimate Revenue or Mere Money-Grab?
Long Beach’s history with medical marijuana has been, to put it mildly, inconsistent. In 2009 the City had an official “wait-and-see” attitude, tolerating the operation of over 50 medpot dispensaries. In 2010 the city council passed an ordinance officially sanctioning them, albeit at exorbitant cost and restrictions many regarded as overbearing. In 2012 the council reversed course and banned them outright. Now, after instructing city attorney draft a new medpot ordinance, the council seems poised to reverse course once again.
The motivating factors for such zigzagging are open to speculation. But considering that the city council placed Measure A on the ballot, it’s a fair surmise that money is one. Measure A, “General Tax on Medical Marijuana Sales,” would compel dispensaries to pay, in addition to business-license fees and the regular 9% sales tax, a city tax of up to 10% on gross annual receipts, along with a tax of up to $50 per square foot of real estate. The starting figures would be a 6% tax plus $15/sq. ft., with the council empowered to raise each at any time.
Is the proposed tax is a legitimate part of bringing medpot back to Long Beach, or is the City simply trying to cash in, regardless of who bears the cost? One councilmember who is not shy about accusing her colleagues of the latter is mayoral candidate Gerrie Schipske. Never afraid to chart her own course, Schipske is apparently the only councilmember to oppose the tax, saying so not only by casting the lone “nay” vote for putting Measure A on the ballot, but subsequently using her blog to enumerate the reasons for her opposition.
Those reasons are varied. She argues that the tax is unfair to dispensaries because it would make them the only business in Long Beach taxed on gross sales receipts. She says it’s unfair to patients because “[n]o other ‘medicine’ is taxed in California,” and that this would be “the largest tax ever paid by residents for a product sold in the City,” a cost “passed along to those with medical conditions who can least afford it.” And she says that, because the tax “cannot be estimated as a steady source [of revenue, i]t cannot be used for police, fire or other essential services and will become a slush fund for City Council.”
According to City Budget Manager Dennis Strachota, some of Schipske’s claims are more accurate than others. While Strachota doesn’t know whether the proposed tax will give medpot the distinction of being the city’s highest-taxed item ever, he confirms that, aside from vending machines, Measure A would make dispensaries the only business taxed based on gross sales receipts. However, he doesn’t see any reason why the tax would need to be considered one-time money.
“We don’t segregate license taxes and identify whether one is more predictable and reliable,” Strachota says. “We look at the source in its entirety. And if this particular tax were making a regular contribution in terms of increased revenue, most likely the City would consider that an ongoing source of revenue, not a one-time [source].”
However, Schipske is correct regarding the taxation of medicine. While prescription medication is exempt from state sales tax, in 2011 the California Board of Equalization ruled that medpot does not share the exemption, and so the passage of Measure A would mean Long Beach medpot would be taxed at a rate as high as 19%, in addition to the square-footage tax.
Schipske’s opposition to Measure A may not be motivated by an interest in securing patients’ safe access in Long Beach to medicinal cannabis (which may be hinted at by her referring to marijuana a “medicine”—i.e., with quotation marks). Between 2010 and 2012, for example, Schipske, O’Donnell, and the 3rd District’s Gary DeLong formed a voting block that consistently worked to block the presence of dispensaries in Long Beach.
But there’s no such ambiguity in the position of the Long Beach Collective Association, an advocacy group for ensuring patients have safe access to medicinal cannabis. The LBCA supports passage of Measure A, going as far as to author the sample ballot’s “pro” argument.
“The majority of the people we’ve talked to do not seem to have a problem with the [proposed] tax,” says LBCA Boardmember Adam Hijazi. “And if it’s going to help public funding—whether it’s police, fire, parks, potholes, whatever it is—I think everybody is kind of okay with it.”
Well, not everybody. Erstwhile 7th District council candidate and dispensary manager Larry King speaks for many in the medpot community when he echoes Schipske’s objections in his anti-Measure A argument.
“This new measure was hastily pushed through Council to create an issue for this election and is ill conceived,” King writes. “No other prescribed medicine is taxed in California. And no other business in Long Beach has even been taxed on both gross sales and square footage combined. […] A tax on marijuana would be acceptable for recreational purposes, just like alcohol. But this is MEDICINE, which is not taxed in California.”
The LBCA concedes all of King’s points, admitting that Measure A “is by no means perfect, and the unprecedently high taxation rate does raise alarm on many levels [… creating] the possibility that the cost will then be passed onto and perhaps out of reach for the truly sick patients. […] Also true is that the measure did get fast tracked onto the ballot even tough the actual medical marijuana ordinance itself has not yet been crafted.”
And as Hijazi notes, the council could have placed a “tax and regulate” ordinance on the ballot, thus allowing voters to approve dispensaries along with an accompanying tax in one step, as the LBCA attempted to do with a proposed ballot measure that, according to the City, failed to collect the necessary number of verifiable petition signatures for inclusion on the ballot. If given the opportunity, Long Beach residents would almost certainly approve allowing dispensaries. In 2010, for example, residents voted in favor Proposition 19, which would have legalized the use and sale of marijuana for recreational purposes (as is currently the case in Colorado and Washington) had it passed statewide.
As it is, even if voters pass Measure A, the council will still have to pass an ordinance allowing dispensaries in order for the tax to take effect. And Hijazi admits to being “very concerned” that the council may back away from allowing dispensaries in Long Beach if Measure A fails.
Hijazi’s concern does not seem unwarranted. For example, despite having been the council’s staunchest opponent of dispensaries over the last three years, in September 4th District Councilmember Patrick O’Donnell voted along with the rest of the council to have a new medpot ordinance drafted. Might he turn around and vote against the pending medpot ordinance if Measure A fails? Random Lengths News posed this question to him but received no reply.
Regarding the severity of the proposed tax, Schipske is not the only councilmember who seems to regard it as too high. For example, 6th District Councilmember Dee Andrews called the tax “out of proportion” during the January council meeting at which the ballot initiative was approved.
So how does one justify taxing medicinal cannabis at such a high rate when it already does not enjoy the sales-tax exemption given to other medicines? Random Lengths News posed this question to Councilmembers Robert Garcia, Suja Lowenthal, and Al Austin, the three co-sponsors of the agenda item that became Measure A, but we received no response to that question, nor to whether their ultimate support for a medpot ordinance would be affected by Measure A’s fate.
Hijazi admits another concern regarding Measure A: that if it passes, the council will immediately exercise the latitude the new law will gives the and raise the taxes from their starting rate—a move he says would definitely negatively impact patients.
“Right now, at 6% and $15 per square foot, [the proposed tax] will be creating a pretty [noticeable burden],” he says. “If it goes up from that, I’d rather give out medical cannabis for free than have to tell patients, ‘This is the minimum [donation for medicine] because the taxes are so high. So it’s a big concern. […] We’re trying to educate the council that [the proposed starting tax] has pretty much hit the peak of what [the tax can be] without really being a burden on the patients.”
Long Beach residents vote YES or NO on Measure A on April 8, 2014.