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File Number: 20-051 <br />1% of gross receipts (non-retail< $1M/year) <br />San Jose 10% of gross receipts <br />Santa Rosa 3% of gross receipts <br />Alameda County 0% (applies to unincorporated areas) <br />All three of San Leandro’s permitted dispensary operators currently do business in jurisdictions <br />referenced above that impose local gross receipts taxes. Additionally, each of San Leandro’s <br />three dispensary operators previously offered to provide voluntary gross receipts contributions to <br />the City’s General Fund as part of their business plan proposals when they first applied for <br />dispensary permits several years ago. For example, the Davis Street Wellness Center (now <br />known as NUG Wellness) voluntarily committed in writing to contribute 9% of its gross receipts to <br />the City of San Leandro. In addition, Blum San Leandro offered to contribute 5% of its gross <br />receipts to the City, and Harborside San Leandro committed to donating 4% of its gross receipts <br />to a community benefits program fund, in addition to 1% gross receipts and 10% net revenue <br />contribution to the City. All of the above-referenced voluntary contributions were ultimately nullified <br />when San Leandro voters adopted Measure NN. <br />State and Federal Taxes <br />It is important to note that in addition to local gross receipts taxes, cannabis businesses <br />throughout the State and region also face significant state and federal taxes as part of their <br />operations. For example, Proposition 64 (which legalized the non-medical, adult use of cannabis <br />statewide in the November 2016 election) established a 15% excise tax that is embedded into <br />the retail sales price of cannabis. In addition, because the federal government still classifies <br />cannabis as a Schedule I controlled substance, cannabis businesses are subject to higher federal <br />taxes than other businesses. More specifically, Federal law 26 USC §280E (also known as “Rule <br />280E”) arguably burdens the retail cannabis industry by disallowing certain standard business <br />expense deductions. Therefore, their federal tax liability is greater than that of a non-cannabis <br />business of similar size and annual revenues. <br />Conclusion <br />Based on the factors stated, and consistent with the City Council’s direction at its November 12, <br />2019 work session, staff recommends modifying the tax rate in San Leandro. Although there was <br />a spectrum of opinions expressed by the City Council members at the November work session, <br />staff developed a modified rate structure that attempts to capture the general direction provided <br />by a majority of the Council Members. The City Council retains the ability to further modify the <br />proposed rates at its discretion. <br />Fiscal Impacts <br />Because only three cannabis dispensaries are presently operating in San Leandro and two of <br />them have been open for less than one quarter, it is challenging to generate reliable General Fund <br />revenue projections for the upcoming fiscal year. Assuming a 17% reduction in whatever revenue <br />Page 3 City of San Leandro Printed on 2/12/2020 <br />85