Cathedral City cannabis business owners argue for lower taxes
Local cannabis business owners pressed Cathedral City officials during a special meeting on Wednesday to consider changes to the city’s cannabis regulations and taxes or risk losing the industry to surrounding cities.
Cannabis businesses in Cathedral City collectively paid a total of $4,971,001 in taxes in 2021. By comparison, Coachella earned about $1.9 million in cannabis tax revenue that same year.
Cathedral City charges a 10% retail tax on gross proceeds — the same as Desert Hot Springs, Palm Springs and Palm Desert. Coachella has the lowest in the Coachella Valley at 6%. If Cathedral City were to lower its retail tax, the city would lose around $150,000 in tax revenue per 1% reduction, according to a city staff report.
It also charges a cultivation tax of $15 per square foot of the entire facility, and a manufacturing tax of $0.05, $0.10 or $0.40 per gram, depending on the type of cannabis concentrate. Some cities only charge cultivation tax on the canopy space of a facility. If Cathedral City followed suit, it would lose around $246,000 to $369,000 in tax revenue annually, according to the city staff report.
But several people in the cannabis industry spoke during the public comment portion of Wednesday’s meeting to say these taxes are putting a strain on businesses. Kenneth Churchill, CEO and co-founder of West Coast Cannabis Club, said Cathedral City is going to lose the industry to surrounding cities if it doesn’t address this.
“We are struggling as businesses to stay alive. Dispensaries are shutting down on a semi-monthly basis and that is only going to get worse,” Churchill said. “To top it off, no one is going to purchase a failed dispensary in a city that charges a 10% local tax rate. When our businesses shut down, they are gone forever.”
He also criticized the city for holding the special meeting on “4/20.” April 20 is considered by some a marijuana holiday.
“The fact that we scheduled this meeting on 4/20 after months of doing nothing on this topic shows that you're not taking us seriously as an industry,” Churchill said. “We have come to ask you for help and you force struggling small businesses to take time out of the busiest day of their year to come here."
Scott Rusczyk, a member of the Coachella Valley Cannabis Alliance Network, said lowering the taxes would actually bring more cannabis business to Cathedral City.
“Cannabis buyers … are as discerning customers as any other customers,” Rusczyk said. “If the tax is lower and I'm in the local community, then I am for sure going to go — especially if I do on a regular basis — to the most tax-friendly community within the Coachella Valley.”
Charlie Kieley, a member of the city’s Cannabis Task Force, said Cathedral City will have a bigger problem if it does nothing about these taxes. Kieley is the COO and co-founder of Kings Garden, which has cultivation facilities in Cathedral City and Palm Springs.
“We have to look at what we lose when we lose these businesses as a whole,” Kieley said. “I know there's a void to fill when we remove 'x' amount of dollars from the revenue, but that void could potentially be even larger if we do nothing.”
Rich Eaton, owner of the Vault Dispensary, proposed a six-month trial of lowering tax to 3% to 5%. He made a similar proposal to reduce the city's retail tax last year, which the council did not support.
"We're not going to know until you lower it. If you lower it to 3 to 5 percent, let's just say July to December, we're going to have a great idea" he said. "Is it working? Does it help? Are sales increased? Are people traveling to Cathedral City to buy?"
The council reviewed the city’s cannabis regulations and taxes as a study session item, meaning it did not take a vote on enacting any changes and only gave direction to city staff. Councilmembers did not give specific direction on taxes, but planned for a discussion on retail and cultivation taxes during its May 11 study session.
Other items councilmembers discussed included allowing cannabis consumption lounges and visibility into cannabis businesses. The council supported both.
For cannabis consumption lounges, the council asked for city staff to bring back more information including how Cathedral City would address potential issues like odor. For visibility to the public, the council asked for ways the city could regulate it and prohibit use of things like cartoon characters.
Cathedral City has not accepted applications for new dispensaries south of Interstate 10 since Nov. 23, 2016. It does not allow "excessive concentration" of dispensaries, which would be if there was a dispensary less than 500 feet from another one north of Interstate 10.
Councilmembers did not support lifting the moratorium.
"The ones we have now are struggling and to bring in more just might put nails in their coffins," Councilmember Nancy Ross said. "We can certainly readdress it at a future time, but I would be concerned to bring more business in."
Mayor Pro Tem Rita Lamb agreed with Ross.
"By the tenor of the folks that were willing to be here today and to share their, you know, provide their input — it seemed like there's definitely in the business community a saturation effect," she said. "And I wouldn't want to contribute any more craziness and crisis to the last couple of years of COVID than than necessary."
Ani Gasparyan covers the western Coachella Valley cities of Desert Hot Springs and Cathedral City. Reach her at firstname.lastname@example.org.