Commentary: New City Revenue Could Follow Marijuana Legalization Vote

Look for the thick smoke that comes with a statewide marijuana legalization initiative.

Try to see through the haze of dueling advertisements about law enforcement and the cost of incarcerating pot offenders, potheads vs. medicinal use, regulation vs. the underground of drug sales.

People will blow smoke about lawsuits and appeals to the Supreme Court with lawyers harvesting millions of dollars. Plenty of newspaper stories and blog posts indulging in pot-smoking double entendres as I have been doing for four paragraphs. (My apologies. I will try to mellow out.)

Another angle to watch – if the Nov. 2 Regulate, Control and Tax Cannabis Act of 2010 passes – will be the opportunity for city governments to get in on the ground floor of taxing marijuana businesses.

This has already played out in the Sonoma County city of Sebastopol, which in microcosm shows how the issue might play in other cities come November, if the state’s voters affirm marijuana legalization.

Wanting to be proactive, Sebastopol City Councilman Larry Robinson authored a resolution for a Nov. 2 city vote authorizing a city tax on marijuana businesses. That way the city could hit the ground running in November, presuming a yes vote on the statewide Tax Cannabis Act. The city would be able to immediately gain tax revenue from sanctioned pot dispensaries and collectives.

Robinson was mindful that the city had just adopted a budget with painful cuts in many departments. A new tax not to exceed 5 percent on marijuana-related businesses could shore up revenues.

The Sebastopol vote went down 3-2 on June 15. Some council members were squeamish about a city revenue measure giving tacit approval to a drug that remains illegal under federal law.

Look for that scenario to play out elsewhere, once the statewide voice is heard, as cities take advantage of a newly sanctioned source of revenue.

“I want the community be poised to regulate it and permit it in the best interests of the community,” said Robinson. “We should tax it in a way that will generate the best revenue stream.”

Robinson said he is not taking a position pro or con on the Tax Cannabis Act. But he worries about “retail leakage” – imagine another city promptly passing good regulations and revenue laws to pave the way for a community-oriented marijuana retailer that gains a lion’s share of area business, and tax revenue for that locality.

It’s not too much of a stretch to imagine cities exchanging the best language to write into marijuana tax and regulation ordinances. There will be great interest in the best wording to give law enforcement tools to encourage responsible cooperatives and dispensaries – and discourage organizations that use medical needs as a front to sell to recreational drug users.

But there will be plenty of city councils refusing to talk about the issue, or showing caution under new circumstances, said Robert Jacob, executive director of the Peace in Medicine Healing Center in Sebastopol.

Jacob supported the idea of a city tax that would allow the nonprofit business to contribute to the community. Jacob went so far as to say “taxation provides legitimacy.”

It’s not a stretch to see that idea getting kicked around a bit in the interplay of rhetoric and advertising leading up to the Nov. 2 vote on legalization.

In other communities, leaders are discussing the revenue possibilities of taxing marijuana dispensaries, including the city of Berkeley and the town of Fairfax.

On June 1, Sacramento extended a moratorium on new marijuana dispensaries, and directed staff to report later in the year on the best ways to regulate outlets, including discussion of a city tax.

These cities are looking to follow in the pioneering footsteps of Oakland, which passed a city tax on medical marijuana dispensaries last summer.

Meanwhile, Oakland considers the next step. This spring, Oakland council members have talked about potential city revenue from sanctioning commercial pot-growing operations.

For sure, the entrepreneurs of those operations will be closely watching the ballot returns in Sacramento Nov. 2 for the Regulate, Control and Tax Cannabis Act of 2010.

Lance Howland can be reached at lancehowland@aol.com