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City eyes cannabis tax as backstop
Voter approval needed to tax pot if developer agreements nixed
Cannabis could be subject to a local tax if voters agree in November and if courts strike down developer agreements. - photo by Contributed to the Courier

Ceres voters will be asked in November to approve the taxing of marijuana sales if future courts strike down developer agreements between the city and three marijuana-related businesses that are now producing hefty revenues for the city.

City Manager Toby Wells said he wants the city to be prepared should judges in the future rule against the developer agreements that were struck last year. The agreements were the city's choice of a mechanism to regulate marijuana businesses as well as producing windfall revenues. Wells said the city is "very comfortable" with the developer agreement process but said they have not been tested in the courts.

"We're confident that it does pass the rule of law, however, the courts often have different opinion and that's one the future of our cannabis regulation we're uncomfortable without having a safety net," said Wells. He recommended moving forward with a local cannabis sales tax measure that would only be triggered if developer agreements cannot be enforced as the result of court action.

He said passage could give the city a choice to apply a local tax to any future marijuana businesses that may not be appropriate for a developer agreement.

The city may frame the tax as a range, such as up to 10 percent like the city of Modesto passed last year. Dixon set a tax rate of 15 percent, said Wells. The actual rate would be set by council resolution, he said.

Currently Ceres has approved two medical marijuana dispensaries and one manufacturing facility - all under developer agreements. They will not be locally taxed unless the agreements are made void, said Wells.

In May 2017 the Ceres City Council approved a medical marijuana manufacturing facility for an industrial area in southwest Ceres. The developer agreement for Kase Manufacturing, 4111 Brew Master Drive, calls for the business to pay the city fees of $50,000 per month during the first year. The fee increases to $75,000 per month in the second year and $100,000 per month in the third yearThe plant became operational last year and made the first payment to the city on Jan. 2.

The first medicinal dispensary was approved in October for Pacafi Cooperative, Inc. to operate its 6,000-square-foot Patient Care First dispensary at 1442 Angie Avenue. Then in November the council approved a developer agreement with Reynolds to operate Kase's Journey, a medical cannabis dispensary at 4030 Farm Supply Drive. Both dispensary operators pledge to pay the city a monthly fee of $40,000 if the firms earn $500,000 or less in gross receipts that month. The fee rises to $50,000 per month for gross receipts between $500,001 and $800,000; $75,000 per month for sales of $800,001 to $1.1 million; and $100,000 monthly for sales more than $1,100,001.

"I think we should use this as a backstop," said Councilman Bret Durossette. "I think Plan B is very important. We stepped out in lead of the cities around and I think right now the revenue that we're collecting is very important to our general fund."

Linda Ryno said that while she may not support future dispensaries, she said a backstop is important to have in place.

Mayor Chris Vierra and Councilman Ken Lane were absent at Monday's meeting.