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L.A. pot dispensaries seek to stay in business by asking to be taxed

As the City Council begins closing illegal sellers, marijuana advocates propose an idea that's being discussed statewide.

July 19, 2009|John Hoeffel

The same day the Los Angeles City Council took its first votes to shut down rogue medical marijuana dispensaries, the chamber roiled with city workers who denounced plans to balance the budget with furloughs and layoffs.

When medical marijuana advocates had their chance to talk, they seized on the coincidence and startled the council with their message. Don't ban us, they said, tax us.

Last week, Councilwoman Janice Hahn proposed to do just that. "They have suggested it, so I just decided let's do it," she said, noting that the city is drafting rules for its hundreds of dispensaries. "To me, the next logical step was, hey, wait a minute, we should be able to benefit from the sales and the revenues."

Hahn's proposal, which she hopes could raise tens of millions of dollars, comes as lawmakers across California, anxious for new revenues, have started to focus on one of the state's most lucrative and least-taxed businesses.

The state's first vote on the issue will be counted Tuesday in Oakland, where voters have been casting mail-in ballots on a proposal to levy a business tax on medical marijuana dispensaries. The initiative, backed by the dispensaries and with no organized opposition, could spur copycat tax measures in fiscally stressed cities around the state.

"Oakland is really just the beginning," said James Anthony, a lawyer who represents dispensaries. "I think a lot of local governments are ready, where they weren't ready five or even three years ago."

On a statewide level, Assemblyman Tom Ammiano (D-San Francisco) introduced a bill earlier this year to legalize and tax pot, which drew widespread attention to the issue.

Although Sacramento faces a $26.3-billion shortfall, the bill is on hold as the assemblyman works to build support.

Estimates of how much money could be raised by taxing marijuana vary widely.

Last week, the state Board of Equalization calculated that Ammiano's bill, which would place a $50-an-ounce levy and sales taxes on all marijuana purchases, would raise $1.4 billion a year. The tax board's researchers cite academic and federal studies, including estimates that the state grows $13.8 billion worth of marijuana a year and Californians consume about a million pounds a year.

"Because it's an underground business at the moment, there aren't hard data," said Robert Ingenito, chief of the research section at the Board of Equalization.

Mark Kleiman, a professor of public policy at UCLA who studies drug policy, scoffed at the estimate. "That raises the question in my mind of what the Board of Equalization has been smoking," he said. "That's an insane estimate."

He believes that marijuana sales in California total about $1 billion a year and that Ammiano's bill would raise perhaps $250 million.

Dispensaries are currently required to pay sales taxes. The tax board estimates that they pay $18 million a year, but two pro-marijuana organizations, which independently surveyed collectives and patients, both arrived at $100 million.

In Oakland, the city auditor estimates that the proposed business tax would bring in $315,000 a year, but Councilwoman Rebecca Kaplan believes the take could be closer to $1 million. The city's four dispensaries reported that they took in $19.7 million in the last fiscal year.

Although the amounts of tax revenue are in doubt, the politics are clear: Advocates of legalizing marijuana are confident that taxing their product will advance their cause. The Marijuana Policy Project recently ran a television commercial in Los Angeles and other California cities encouraging lawmakers to tax pot.

"Like it or not, this is a very large industry," said Bruce Mirken, spokesman for the Marijuana Policy Project. "At a certain point, it just makes no sense to have such an industry operating in the shadow, unregulated, untaxed, not answerable to anyone."

Ammiano does not take credit for the pot tax idea. But he does take credit for recognizing that it was an auspicious time to introduce a bill. "I was just anticipating a perfect storm: political will, populism, economic stress, federal policy looking as if it is going to become more liberalized and enlightened," he said.

The month after he introduced the bill, President Obama's administration indicated that it would end federal prosecution of medical marijuana dispensaries that adhere to state law.

In April, the Field Poll found that 56% of the state's voters want to legalize and tax marijuana. In Los Angeles County, 60% of the voters were pro-pot.

"That was certainly a first in this state," said Mark DiCamillo, the poll's director.

Despite the state's dire economic situation, Ammiano's bill has played little role in the budget debate. The assemblyman has not pushed for a quick vote, realizing he would have to persuade cautious colleagues.

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