Looking to weed out illicit operations and grow tax revenue, Sacramento County is taking first steps that could lead to cannabis businesses being allowed in unincorporated communities.
County supervisors on Tuesday voted 3-2 to direct staff to draft an ordinance for a potential cannabis tax measure for the November ballot. Supervisors Don Nottoli and Sue Frost voted against the move. County staff are expected to return to the board with a proposal in July.
If the board decides to place such a measure on the ballot and voters pass it, supervisors could then consider permitting, regulating and taxing cannabis businesses in the unincorporated county – which includes urban areas like parts of south Sacramento and rural outposts like Clay.
Under current county rules, commercial cannabis operations are not allowed outside city limits.
Taxing even just retailers could yield between $3.8 and $12.5 million in additional tax dollars each year, depending on the rate supervisors choose and how much business flocks to shops, according to projections from a consultant hired by the county.
Supervisor Phil Serna whose motion moved the issue forward Tuesday said he viewed it as a means to keep from losing “valuable revenue that has otherwise gone to other parts of our region.”
“I don’t think you would get any argument from any of us that we’re always interested in finding ways to augment our general fund budget,” he said.
Others on the board disagreed. “It’s not always about the money,” Nottoli said.
He said there is sufficient access currently and that he worried about some of the rural areas in his district, though he acknowledged there would be “ample opportunity” by the board to further discuss how to structure any licensing and permitting if a measure were to come before voters and they approve it.
Frost said she felt the effort was hasty. “I’m not saying I’m against or for, I’m saying it feels a little bit rushed,” she said. “There wasn’t really a whole lot of, you know, public process.”
California voters authorized recreational cannabis in a 2016 ballot measure, Proposition 64. Licensed retail marijuana shops began operating on Jan. 1, 2018.
Retail marijuana as ‘the golden ticket’
Two cites in Sacramento County allow cannabis businesses, Sacramento and Isleton. The city of Sacramento netted $20.6 million in cannabis tax revenue in fiscal year 2021-22, according to a presentation for supervisors Tuesday.
The city of Sacramento and nearby Yolo County are home to nearly 80% of the commercial cannabis businesses in a nine-county region that includes Contra Costa, Solano, Sutter, Placer, El Dorado, Amador and San Joaquin counties.
Although local governments can choose to tax a variety of industry categories – from cultivation to manufacturing and distribution – retail is the moneymaker, said David McPherson, compliance director for HdL Companies, a firm retained by the county to conduct an analysis and make recommendations on a potential tax structure.
“The retail really is where the golden ticket is and where the premium is,” McPherson told supervisors, adding that the city of Sacramento derives the majority of its revenue from retail facilities.
McPherson also said that in jurisdictions where cannabis businesses are legally permitted the illicit market sees a drop, in part, because “the legal industry will snitch on those that are illegal because it’s taking their revenue.”
‘Edge out the illicit market’
Supervisor Rich Desmond, a former California Highway Patrol officer, agreed with others on the board that public health and public safety officials should be involved in future discussions as the issue moves forward.
He said he was torn on the topic for a long time. Coming from the public safety world, he said, there was a kind of tension between his “libertarian free market sensibilities and public safety sensibilities.”
But over time, like for others, he said his thinking changed.
“We’ve seen that, you know, legalizing cannabis has resulted in our ability to provide consumer protections, provide environmental protection to edge out the illicit market, which has historically, you know, caused a lot of problems in our communities,” Desmond said.
This story was originally published May 12, 2022 5:00 AM.
