Should Palm Springs Update its Tax on Marijuana Businesses in the City?

Palm Springs voters have a full ballot to consider when they go to the polls Nov. 7. They will decide who is worthy of their support for two open seats on the City Council. They will also vote on two tax issues.

One is Measure D, called an Essential Services and Public Safety Measure. It would increase the city sales tax a half cent.

The other question on the ballot is Measure E, which doesn’t seem as straightforward to voters as Measure D. So, Uken Report asked leadership at Palm Springs City Hall for some explanation and clarification.

City Attorney Edward Kotkin provided the following unedited responses.

Question: In simple, layman’s terms, what is Measure E and what will it do? We understand that the city currently receives a 10 percent tax from medical cannabis operators on gross receipts. So, does Measure E raise that rate and, if so, to what rate?

Answer: Measure E is a proposed update to the tax on cannabis businesses in Palm Springs. It covers new commercial medical use and adult use. Measure E does not raise the tax rate. The current cannabis tax rate payable by cooperatives/collectives is at a maximum of 15 percent of gross receipts, and is collected by the City at 10 percent. The new tax rate, if approved by the voters, will also be at a maximum rate of 15% of gross receipts, payable by commercial medical and adult use operators. The City Council will have the discretion to continue the tax rate applicable to new cannabis operators at 10 percent. Measure E also would create a new tax on cultivation at a maximum rate of up to $10.00/square foot, adjustable yearly.

Question: Will Measure E affect only new medical cannabis operators?

Answer: No. If Measure E passes, it will also affect existing cannabis operators who secure new commercial medical or adult use permits.

Question: Will current medical cannabis operators be grandfathered in?

Answer: No. Current operators will be taxed the same as new operators.

Question: Why is this tax needed?

Answer: If Measure E passes, the revenue generated by this tax will be used for a variety of City purposes, and will help advance the public health, safety and welfare. Potential uses of this revenue include fire and police protection, paramedic services, street, park and public facility cleaning, repair and maintenance, police and fire equipment, and other public needs identified by the City Council.

Question: How many current cannabis operators/business are there in Palm Springs?

Answer: Six

Question: Is the city expecting an onslaught of new medical cannabis operators?

Answer: The City has no expectation, but hopes that if Measure E passes, many high quality medical cannabis businesses will be attracted to do business here.

Question: Does the city have a cap on how many medical cannabis business licenses it will issue?

Answer: Not at the present time.

Question: How much tax revenue does the city currently receive from medical cannabis?

Answer: Approximately $1.5M/year.

Question: What is the estimated tax revenue if Measure E passes?

Answer: The estimated revenues are difficult to predict, but the City doesn’t expect cannabis revenues to decline if Measure E passes.

Question: The city-sponsored brochure that arrived in the voters’ mailboxes says, “Cannabis cultivation (grows) would be taxed up to $10 per square foot?” What are they currently taxed?

Answer: They are not currently taxed.

Question: How many growers are in the city?

Answer: Six

Question: How will the revenue collected be used?

Answer: It will be allocated by the City Council during the budget process.

Question: How many votes does Measure E need to pass?

Answer: 50 percent of qualified voters plus 1 vote

Question: Voters in general are concerned about how this money will be spent and whether it will stay in Palm Springs? How can residents be assured the money will stay local and be spent in the manner in which it is intended?

The State will direct the new revenue collected to the City. Measure E provides for an audit and public oversight.