Sen. Mike McGuire floats bill to increase sales tax on medical marijuana

State Sen. Mike McGuire, D-Healdsburg, introduced legislation Wednesday that would establish a 15 percent statewide sales tax on medical marijuana, a move he said was needed to help cover local government costs to control the booming cannabis industry.

The tax would be in addition to the existing sales tax - roughly 8 percent on goods and services - and is expected to generate more than $100 million a year, with a 30 percent share available to cities and counties for costs associated with medical cannabis.

McGuire called his bill, the Marijuana Value Tax Act, “an important second step” to the sweeping regulation of medical marijuana cultivation, distribution and sales signed by Gov. Jerry Brown in October. That regulatory framework is scheduled for implementation on Jan. 1, 2018, and the sales tax would take effect that time, as well, if McGuire’s bill becomes law.

McGuire, one of the authors of the new regulatory scheme, last year signaled his intent to introduce a tax measure on pot sales.

“It’s time to help fund the areas that are most affected by (marijuana) cultivation - those communities that have long been paying the price of the negative effects of cultivation brought on by the ‘bad actors’ who destroy the environment and bring in crime,” said McGuire, whose North Coast district takes in much of the state’s famed pot-growing empire.

A prominent Sonoma County-based cannabis trade association said it has no objection to a tax on marijuana sales, but contends that a 15 percent startup rate is too high.

“The market might not be able to bear that,” said Tawnie Logan, executive director of the Sonoma County Growers Alliance. The 400-member group would prefer a startup rate of 10 to 12 percent, she said.

With the underlying sales tax, the overall tax rate for medicinal pot sales resulting from McGuire’s bill would be roughly 23 percent.

McGuire said that Washington state levies a 37 percent state and local tax rate on medical and recreational marijuana, and Colorado’s combined tax rate is 30 percent.

But Logan noted that additional local taxes - which are allowed by California’s new marijuana laws - could result in an overall rate of 30 percent.

High taxes, presumably passed on to consumers, will prompt them to buy cannabis from black market operators, Logan said, undermining the effort to create a legitimate industry.

The state Board of Equalization collected $44 million in sales taxes from dispensaries in 2014 - at an average tax rate of 8 percent - and estimated that only 25 percent to 30  Percent of the sellers made the required payments. Eighteen dispensaries in Sonoma County paid $2.6 million in taxes on nearly $31 million in retail sales, the board said.

McGuire said that $100 million in annual revenue is a “safe but conservative estimate” of the proceeds from the proposed tax. Thousands of medical pot dispensaries are expected to apply for state licenses, he said, noting that there are as many as 2,000 dispensaries in the greater Los Angeles area.

Matching the amount set aside for cities and counties, the state general fund would get 30 percent of the revenue. State parks would get a 20 percent cut, and 10 percent would go to both the state Natural Resources Agency to restore damage to public and private lands from marijuana cultivation and to county-level drug and alcohol treatment programs.

Medical marijuana businesses that choose to become regulated by the state will face licensing fees and other first-year costs amounting to tens of thousands of dollars, Logan said. The alliance is telling business operators to begin setting aside 20 percent of their proceeds “to see if they can work with” the remainder, she said.

The industry, enabled by voter approval of medical marijuana use in 1996, has been largely unregulated since then and is estimated to be worth well over $1 billion a year.

Meanwhile, at least 10 proposed initiatives would seek to legalize recreational marijuana use at the ballot box in California this year. While none has qualified for the November ballot, most of the measures allow some form of sales taxes, ranging from 10 to 15 percent.

Logan said she toured Washington state last year and found the state’s taxes had caused a “significant failure rate” among cultivators that led to large companies buying up some farms. State officials such as Lt. Gov. Gavin Newsom and cannabis advocates have spoken of the need to protect small cultivators.

McGuire said his bill would “make our communities stronger by focusing on the impacts of cultivation and use of marijuana,” with funding for local law enforcement and neighborhood improvement programs.

State parks face a $1 billion backlog of deferred maintenance, while the resources agency needs funding to rehabilitate “significant harm” done by illegal growers to forests and watersheds.

The bill needs a two-thirds vote in the Legislature, and McGuire pointed to the bipartisan vote for his medical marijuana regulation measure and said he is lobbying Republicans and Democrats for the sales tax plan.

You can reach Staff Writer Guy Kovner at 521-5457 or guy.kovner@pressdemocrat.com. On Twitter @guykovner.