Cathedral City plans to lower cannabis taxes to help struggling businesses. But by how much?

• Business owners say the pandemic, competition from the black market and an oversaturated market are a perfect storm.
• Council members worry about loss of revenue, though one added, “But 10% of nothing is nothing.”

Cathedral City may be lowering its cannabis taxes after pleas from local business owners that they’re crumpling under the high costs. But by how much remains unclear. 

The city council has long debated whether it should give cannabis businesses tax breaks. Despite several meetings on the topic, testimonies from industry leaders, and other changes to cannabis policies that included minor tax exemptions for cultivators, the council has avoided making major changes due to concerns about revenue loss. 

That might soon change. 

In a Wednesday study session, the council supported lowering cannabis taxes, though the details are still undecided as it waits to review the city’s budget in the coming weeks. City Manager Charlie McClendon said he’ll prepare a resolution regarding the taxes for the council’s consideration in late February.

City staff’s recommendation is to cut the cannabis retail tax by half to 5%, cultivation tax to $10 per square foot, and manufacturing tax to between 3 and 5 cents. Currently, the retail tax is 10%, the cultivation tax is $15 per square foot, and the manufacturing tax is 5, 10 or 40 cents per gram depending on the type of product. 

But the council was split on how to lower these numbers, with talk of either supporting staff’s recommendation, even lower taxes, or waiting to balance the revenue loss in the city’s budget before promising a specific amount. 

Councilmember Ernesto Gutierrez said he’d like to know how the city will make up for the cuts. The council scheduled a special meeting for Saturday to discuss finances and goal setting, and also has a number of budget meetings on the docket.

“It’s not about if, I believe — we’re going to do this,” Gutierrez said. “It’s how much.” 

The city received around $4.6 million in overall cannabis tax revenue in 2020, around $5 million in 2021, and around $3.6 million in 2022, McClendon said. It is estimated to lose around $1,335,000 in revenue a year if it reduces cannabis taxes to the city staff’s recommendations for retail and cultivation taxes. There are not many manufacturers in the city, according to a city staff report.  

“It's kind of scary budget-wise to think that we’d make a change in our tax rate,” said Mayor Rita Lamb, who supported the staff's recommendations. “But 10% of nothing is nothing.” 

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The city surveyed local businesses about their operations and finances, getting 11 responses. Business owners on Wednesday reiterated concerns that they are failing due to high taxes, an overly saturated market and competing with the cheaper black market. 

Kenneth Churchill, CEO and co-founder of West Coast Cannabis Club, said “cannabis was not the golden goose” anyone thought it would be. He said it isn’t the city’s fault the cannabis industry is in its current position, but it owes it to the residents behind these businesses to help. 

“The only people who haven’t got on board on this is the council, and we’re here asking you to help support small businesses, help support jobs in this community and help make sure that the cannabis industry can survive by meeting us at 5%,” he said. 

John Chaisson, owner of Atomic Budz, said the lower tax rate would help it bring back and keep local customers, but he looks forward to when the industry is taxed and treated like any other kind of business.

“I’ve been here since the beginning, 2017, and I can tell you it's been very difficult. The pandemic, especially, really hurt us,” Chaisson said. “The loss of the visitors and many locals going to the cheaper black market (for) cannabis put a severe financial burden on my business.” 

The council is expected to possibly vote on lowering cannabis taxes on Feb. 22.

Ani Gasparyan covers the western Coachella Valley cities of Desert Hot Springs and Cathedral City. Reach her at ani.gasparyan@desertsun.com.