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Oakland Wrestles With Bewildering Pot-Tax Proposals

The City Council Hopes to Decide Rates by Nov. 5

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A few months ago, it looked like Oakland was finally going to cut taxes on cannabis businesses, which nearly everybody agrees are excessively high. There was a palpable sense of relief, and even glee, among the throngs of people who showed up in May for a meeting of the City Council's Finance Committee when that panel agreed to a measure cutting the rate at least in half for larger businesses, and by much more for smaller ones. The consensus was to lower the top rate to a maximum of 5 percent from the insanely high 10 percent rate that has sent businesses scurrying out of town, and dissuaded others from locating in what is supposed to be the world's Pot Capital. Consumers, meanwhile, continue to scurry to the black market, where there are no taxes at all.

Some progress was made. The council later enacted a radical cut — to 0.12 percent — but only for businesses with less than $500,000 in gross sales. Action on cutting taxes for bigger companies are still on hold. After councilmembers started picking apart the proposed cuts for larger businesses, a familiar dread set in. It still seems more likely than not that the full council will cut taxes by about half at its Nov. 5 meeting, but nobody in the industry is banking on it: they've been burned before.

The Finance Committee met again last week. There were no throngs. Just a handful of desperate, defeated-seeming cannabis vendors. "Whatever tax relief you're inclined to give, we really need that tax relief now," Harry Berezin pleaded with committee members. Berezin is the chief compliance officer of Bloom Farms, a maker of vape cartridges and other cannabis products.

It's not that council members have bad reasons for hesitating. The city's staff has repeatedly argued that any the various proposals put forth would leave a big hole in the city budget. And while some council members dispute how big such a hole might be, they don't dispute that they are limited in how deeply they can cut rates. The initial proposal called for businesses with revenues greater than $500,000 to be taxed at rates ranging from 1.5 percent on the low end up to 5 percent, depending on what kinds of businesses they are (retailers and testing labs would get lower rates, distributors and manufacturers higher rates).

The newer proposals, which have come from several different council members, would up those proposed rates considerably, while still enacting substantial cuts for most businesses. The new rates for bigger business would range between 5 percent and 10 percent.

Another problem the city has to iron out: the fact that proposed differing rates for medical and recreational pot weren't really feasible for much of the supply chain. It's easy enough for a dispensary to assess a lower tax on medical pot (currently at 5 percent): medical consumers have cards proving that they are entitled to the lower rate. But manufacturers and distributors can't know precisely which of their products will go to medical users and which to recreational enthusiasts. That needed to be ironed out, and it appears likely that both types of cannabis will have the same, lower tax rate once the council makes a decision.

The other major sticking point has to do with the city's Cannabis Equity Program, which is supposed to give a leg up to victims of the drug war, many of whom had their lives upended by arrests and convictions for selling or possessing the very product that is now becoming a big, legal industry overrun by white people financed by white venture capitalists. The program gives incentives to businesses that incubate businesses owned by participants, by giving them office space, advice, and other help.

The program, which receives millions in state support, offers tax rebates for companies taking part. A suggested compromise among the various proposals put forth would max out the rebates at 1.5 percent for hiring a sufficient number of qualified participants; 1 percent for sourcing supply from suppliers that are equity participants, and 0.5 percent for paying a minimum of $20 an hour with benefits, or $25 an hour without benefits.

If your head is spinning, you're not alone. Councilmember Loren Taylor, not on the finance committee, showed up at the panel's meeting last week to say as much. Though he's intent on making the equity program work, he said "the concept of incorporating equity permutations and complexities gets us closer to the goal, but it creates confusion that makes things difficult for the businesses that we're trying to help."

The council has until its Nov. 5 meeting to reconcile and simplify the proposals to whatever degree it can. While the details might be important, most of the industry is more concerned — assuming the rates are cut substantially — that the cuts come quickly, and that the problems with the equity program be ironed out with equal dispatch. "I've been getting kind of discouraged," said Ann Jackson, owner of Essential Essence, a vendor of cannabis topicals and an equity participant who said her livelihood is on the line. "I want to be able to leave my kids something." 

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