Watsonville Looks to Cut Taxes on Cannabis to Compete with Neighbors

Proposed changes would cut taxes on retail cannabis businesses in half


The Watsonville City Council at its Tuesday meeting will weigh whether to overhaul its tax rates on cannabis businesses, a move a consultant and city staff say would make the city more competitive with neighboring jurisdictions.

The proposed changes would cut taxes on retail cannabis businesses in half, reducing them from the 10% tax on gross receipts approved by voters in 2016 with the passage of Measure L to 5%.

That move would align its retail rates with nearby Salinas, Hollister and Marina. It would also bring Watsonville close to its nearest competitors, Santa Cruz County (7%) and Monterey County (4.5%).

The city of Santa Cruz taxes its retail cannabis businesses 7%.

Cultivators would also see a similar tax cut, as the proposed rate of $10 per square foot of canopy area is half of the current rate. Cannabis nurseries, which in the past have been lumped in with all other cultivators, would only be taxed $1 per square foot of canopy area—the same rate neighboring Monterey County charges its nurseries.

The city, however, would now charge a 2% tax on gross receipts for cannabis processing, a new charge that coincides with the state’s cannabis processing license that allows for the separate drying, curing and processing of the plant.

The new rates, according to the prepared staff report, would generate between $1.4-2.6 million per year for the city.

Because of voter approved Measure M, those funds would go to the police (20%), fire (15%), community development (20%), parks and community services (25%) and library departments (8%). In addition, 12% of cannabis taxes go to nonprofit grants determined by the Watsonville City Council.

The proposed changes follow the Watsonville City Council’s recent decision to allow three dispensaries to operate within city limits and expand its limits on cultivation, among other things.

It is unclear when Watsonville will welcome its first bonafide retailer. Community Development Department Director Suzi Merriam said the city received 12 applications from prospective dispensaries when it opened its application process last year. That included three businesses that applied for the city’s equity program, which sets aside one of the three retail licenses for small, local and minority-owned businesses owners.

To see the complete March 9 Watsonville City Council agenda, click here.

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