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File Number: 17-610 <br />Overview of Potential Cannabis Business Tax - no revenue pending the opening of the <br />first dispensary <br />Now that the City has issued three cannabis dispensary permits and established a pilot program <br />for cannabis labs and manufacturing businesses, the City has an opportunity to derive an <br />important new source of revenue from these businesses. Similar to many other communities that <br />have permitted the operation of cannabis businesses, the tax in San Leandro is based on the <br />cannabis businesses’ annual gross receipts. Given that the specific rates of such taxes vary by <br />jurisdiction, coupled with the rapidly evolving legal and regulatory landscape surrounding the <br />cannabis industry, the ballot measure was structured such that the tax amount would be “up to” <br />10% of gross receipts. The language allows the City flexibility to modify the rate over time up to <br />that maximum 10% threshold. The ordinance has also been structured such that it would apply to <br />any business involving the use of any component of the cannabis plant. <br />Given that no permitted cannabis dispensaries are yet operating in San Leandro, there is <br />uncertainty as to how much revenue will be derived from the tax. However, based upon revenue <br />estimates provided by permit recipients (Harborside San Leandro, Blum and Davis Street <br />Wellness) as part of its application materials for their dispensary permits, staff estimates that this <br />revenue measure could potentially generate more than $500,000 per year based on the initial <br />rate of 6% of gross receipts. <br />On March 20, 2017, the City Council authorized a tax structure that increases over a three-year <br />period to 8%. <br />Overview of Modifications to the Business License Tax - $803,000 received through <br />June 30, 2017 <br />The modifications to the business license tax have been designed to align the City’s business <br />license tax rates with City Council priorities to support small businesses located in San Leandro, <br />while also incentivizing the productive use of the City’s industrial areas. <br />Small Business Discount: <br />As structured in the ordinance, the per-employee component of the business license tax for small <br />San Leandro businesses with three or fewer employees is eliminated. Previously, these <br />businesses paid a flat fee of $128.20, plus a per- employee fee that varies by business type. The <br />per-employee fee is waived for small businesses. <br />This modification results in a tax reduction for approximately 1,800 small businesses located in <br />San Leandro and a decrease in business license tax revenue of $156,000 annually. <br />Warehouse Rate Change: <br />Additionally, the ordinance modifies the tax rate applied to warehouse and distribution <br />businesses. They were previously charged a flat fee of $128.20, plus a per-employee fee. The <br />ordinance charges them $100 per 1,000 square feet of building space. The rationale for this <br />change is to align the business license fee with the impact of such businesses, much of which <br />comes from the physical size of their business rather than the number of employees. Warehouse <br />and distribution businesses cause heavy wear on local streets through truck and delivery traffic, <br />Page 3 City of San Leandro Printed on 10/30/2017 <br />116