title
CC - ACTION ITEM: Adoption of an Ordinance Amending Culver City Municipal Code Section 11.32.025.E to Decrease the Cannabis Business Tax Rate for Cannabis Distribution from 2% to 0%, Effective January 1, 2024.
body
Meeting Date: November 13, 2023
Contact Person/Dept.: Jesse Mays, Assistant City Manager
Lisa Soghor, Chief Financial Officer
Phone Number: City Manager’s Office: (310) 253-6000
Finance Department: (310) 253-5865
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Attachments: Yes [X] No []
Commission Action Required: Yes [X] No [] Date: 10/12/2023
Commission Name: Finance Advisory Committee
Public Notification: (E-Mail) Meetings and Agendas - City Council (11/07/2023)
Department Approval: John Nachbar, City Manager (11/06/2023)
______________________________________________________________________
RECOMMENDATION
Staff recommends the City Council adopt an ordinance amending Culver City Municipal Code (CCMC) Section 11.32.025.E to decrease the Cannabis Business Tax Rate for Cannabis Distribution to 0% effective January 1, 2024.
BACKGROUND
On October 23, 2023, City Council introduced for first reading an ordinance amending CCMC Section 11.32.025.E to decrease the Cannabis Business Tax Rate for Cannabis Distribution to 0% effective January 1, 2024.
At the April 10, 2018 General Municipal Election, the Culver City voters approved Measure A, a cannabis business tax. The ballot measure added Chapter 11.32 to the CCMC, which governs the cannabis business tax. The initial and maximum rates for the tax, as approved by voters, are as follows:
• Retail (medicinal): range of 5 -8% with an initial rate of 5%
• Retail (adult-use): range of 6-10% with an initial rate of 6%
• Manufacturing: range of 4-6% with an initial rate of 4%
• Distribution: range of 2-6% with an initial rate of 2%
• Testing: 1-1.5% with an initial rate of 1%
• Cultivation: $12 per square foot of canopy
The initial rates were put in place for a minimum of two years, after which, beginning on July 1, 2020, the City Council had the authority to increase, by resolution, the initial tax rate, provided such increase does not exceed the maximum rates approved by the voters, as set forth in Chapter 11.32. Under CCMC Section 11.32.145, the City Council has the authority to amend Chapter 11.32, provided the tax rates are not increased beyond the rate beyond what is permitted under the Chapter. To date, the City Council has not adjusted the initial rates approved by voters. Cannabis distribution tax rates in other California cities are included in Attachment 1.
On August 28, 2023, the City Council, in response to a request by a representative from a permitted Culver City cannabis manufacturing, distribution, and delivery-only retail business, requested that staff agendize a discussion of whether to lower the cannabis business tax rate from 2% to 0%.
On September 11, 2023, the City Council discussed whether to decrease the Cannabis Business Tax Rate for Cannabis Distribution from 2% to 0% and referred this matter to the FAC for consideration and a report back to the City Council.
On October 11, 2023, the FAC discussed the assignment from the City Council to consider decreasing the Cannabis Business Tax Rate for Cannabis Distribution from 2% to 0%. The Finance Advisory Committee, by a vote of 4-1, recommended to the City Council to “reduce the rate from 2% to 0%.” As part of that vote, the FAC also recommended that there should be “monitoring mechanisms to ensure the commitment of the company to stay…[in Culver City, which] should be checked periodically so… [the tax rate can be adjusted] if that [commitment] is not lived up to.”
DISCUSSION
On October 23, 2023, the City Council, by a vote of 3-1, approved the introduction of an ordinance amending Culver City Municipal Code (CCMC) Section 11.32.025.E to decrease the Cannabis Business Tax Rate for Cannabis Distribution to 0% effective January 1, 2024.
The City Council recommended revisiting the rate reduction after two years. Staff will monitor all cannabis business tax revenues and return in late 2025 with an item for consideration.
FISCAL ANALYSIS
The fiscal impact of decreasing the Cannabis Business Tax for cannabis distribution from 2% to 0% will result in a reduction in General Fund Revenues. If Council adopts the ordinance reducing the rate from 2% to 0%, staff will continue to monitor all cannabis related revenues and adjust revenue projections accordingly.
ATTACHMENTS
1. 2023-10-23 ATT Ordinance Amending CCMC Section 11.32.025.E
MOTIONS
That the City Council:
Adopt an ordinance amending Culver City Municipal Code Section 11.32.025.E to decrease the Cannabis Business Tax Rate for Cannabis Distribution from 2% to 0% effective January 1, 2024.