Encinitas City Council sends proposed cannabis business tax to voters

Encinitas voters will decide whether to add a citywide cannabis business tax this November, after the City Council unanimously voted to approve a ballot measure May 11.

If approved, the city would be able to tax retail cannabis businesses between 4% and 7% percent, as well as 1% to 4% for nonretail uses. Cultivation would be taxed at between $2 to $10 dollars per square foot of canopy area. The City Council would have to adopt an ordinance that sets the specific tax rate within those ranges, and would have the flexibility to amend the tax rate as long as it stays within the specified ranges.

Based on that tax range, the city is estimating revenue of $800,000 to $1.4 million once all four cannabis retail businesses that are allowed under city law are up and running. A lottery process that attracted more than 200 applicants who want those licenses is still underway.

If approved, the new tax would go into effect on Jan. 1, 2023.

The new cannabis businesses and potential taxes follow passage of Measure H, a ballot measure approved by Encinitas voters in 2020 to allow a limited number of cannabis businesses in the city. A similar ballot measure failed in Solana Beach during the same election.

In 2016, nearly two-thirds of Encinitas voters approved Proposition 64, which legalized recreational cannabis sales but also allowed cities to ban cannabis businesses within their own borders if they wanted. Measure H overturned a ban on cannabis in Encinitas that the council enacted a few years prior.

Encinitas resident Trina Priest said during public comment that the revenue should support local students.

“It would be my recommendation that the tax measure be placed on the November ballot, and then direct those taxes toward our youth education,” she said. “Today’s K-12 students have endured a series of unexpected stressors during the COVID-19 pandemic.”

Another Encinitas resident, Mark Wilcox, mentioned some of the litigation that other cities are involved in on cannabis-related matters.

“Perhaps there are more precautions that need to be put into place to protect Encinitas citizens, especially our young people,” he said.

The resolution to put the tax proposal to voters required at least a four-fifths vote. Council members also discussed the official argument in favor of the ballot measure that will be distributed to voters later this year.

“I think they’ve taken into consideration lots of different events that could happen in the future,” Deputy Mayor Joe Mosca said, referring to city consultant HdL Companies, which has been working on the tax structure, “so that this tax would apply in case there are changes in regulation or other things come about in the future.”