Feds cloud pot shops' revenue role

October 27, 2010

Daniel Thigpen, Record Searchlight

If California voters next week legalize marijuana for recreational use, several cities, including Stockton, are poised to impose new taxes on pot businesses through their own ballot measures. But now that federal authorities have indicated they will continue to enforce anti-drug laws even if Proposition 19 passes, it's less clear if retail pot shops will be a source of new revenue for cash-strapped cities such as Stockton.

U.S. Attorney General Eric Holder wrote in an Oct. 13 letter to former Drug Enforcement Administration officials that the government will "vigorously enforce (federal law) against those individuals and organizations that possess, manufacture or distribute marijuana for recreational use, even if such activities are permitted under state law."

Mayor Ann Johnston said Stockton's ballot measure is necessary in case recreational marijuana businesses are allowed, but she said that possibility is murkier given Holder's comments.

"It's all very much in the air," she said. "We don't even have categories for that type of business in the city at this time."

Stockton's Measure I targets medical and potential recreational marijuana outlets.

If passed, it would levy a 2.5 percent tax on sales at medical marijuana dispensaries and allow a 10 percent tax for all other marijuana businesses should voters approve Proposition 19.

Other cities, such as San Jose, Berkeley, Oakland and Sacramento, have similar ballot measures before voters Nov. 2.

If Proposition 19 passes, Stockton would first need to decide whether to allow and regulate recreational pot shops before imposing any voter-approved taxes on those types of businesses, City Attorney John Luebberke said.

The attorney general's stance on Proposition 19, however, could be a factor in whether anybody would even want to open such a shop in Stockton, said Michael Vitiello, a professor at University of the Pacific's McGeorge School of Law who has studied marijuana legalization in California.

If a marijuana producer is paying taxes on its sales, for instance, it could open itself up to easy scrutiny from drug enforcement agents, Vitiello said.

"The elephant in the room is the federal government," he said.

He recalled the federal raids on pot dispensaries after Proposition 215, the measure that legalized medical marijuana in 1996. Once the government backed off, he said, the industry saw immense growth, and local governments saw opportunities to tax those sales.

"The system can work as long as the federal government is willing to create some space," Vitiello said.

Stockton already has rules to regulate medical pot. Approved in August, the restrictions cap the number of dispensaries at three, with a future limit of one per 100,000 residents as the city grows.

There are other restrictions on where the outlets can locate. Operators who want to open a dispensary in Stockton must apply by Nov. 29.

Americans for Safe Access, an Oakland-based advocacy group, opposes Stockton's Measure I. The group is against taxing medical marijuana but supports the tax for recreational use if it's legalized.

A CLOSER LOOK

What Measure I does: Levies a 2.5 percent tax on sales at Stockton medical marijuana dispensaries and allows a 10 percent tax for all other marijuana businesses should California voters approve Proposition 19 to legalize marijuana for recreational use.

Other cities with similar ballot measures:

• Sacramento: Measure C authorizes city to levy up to 4 percent tax on medical marijuana dispensaries and up to 10 percent on nonmedical marijuana businesses if Proposition 19 passes.

• Berkeley: Measure S permits a 2.5 percent tax on medical marijuana dispensaries and 10 percent on other pot businesses.

• San Jose: Measure U allows city to impose a tax of up to 10 percent on all marijuana businesses.

• Oakland: Measure V would increase the 1.8 percent tax rate on medical marijuana sales to 5 percent and permit 10 percent tax on recreational pot shops.

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