The Artesia City Council in California will discuss cannabis tax revenues during its meeting tomorrow night. The city banned commercial cannabis activities in 2016. Last month, the city reviewed a resolution that would allow residents to vote a cannabis tax measure to permit a limited number of cannabis businesses. The city council decided not to act on the measure until it understood the amount of money raised by other nearby cities.
Artesia’s staff report shows that it is difficult to grasp how many commercial cannabis businesses are operational and paying taxes. The staff analyzed the tax revenues of six cities including Baldwin Park, Bell, Bellflower Culver City, Los Angeles, Maywood. The staff failed to find a city that met its revenue projections.
For example, Culver City projected $1,750,000 in revenue and only brought in $25,000. Baldwin Park projected $4,000,000 in tax revenues from 30 cannabis businesses but only collected $750,000. Bellflower collected only $28,000 in tax revenues during the first quarter this year, which is significantly lower than the $860,000 revised projection. Bellflower staff indicated that the city is finding it difficult to get cannabis businesses to open. Of the 13 permits issued by the city, only three cannabis businesses are open.
The regulatory permitting process, construction build-out, and the final city site approvals are causing significant delays in the opening of cannabis businesses. The lack of revenue drains capital and other resources. Some license holders are selling before the businesses become operational due to capital constraints or just to turn a profit.
The question is how to speed up the permitting process while ensuring that cities and counties choose quality businesses that will maximize revenues in a compliant manner. An alternative may be to test the business plan proposed by applicants for capital sufficiency.
A capital test may not be the socially acceptable way of allocating these business licenses but capital is needed to operationalize a brick and mortar business. Given the lack of traditional financing, the industry needs a capital introduction service that pairs money with local operators. Cities and states can utilize this service in the permitting process in exchange for information about average costs and revenues so that tax revenues projections are accurate. The current process is not working. We need to innovate and solve this issue in order for the industry to continue to grow.