Two years ago, the city of Lompoc approved the manufacturing, sales and use of cannabis products. At the time, the City Council majority was convinced this would become a windfall of tax revenue for the General Fund.
Of course, the developer/proponent of every large project that has ever been proposed to the City Council has made the same claim, and the city is still experiencing a shortage of revenue to maintain basic services.
Because the council didn’t set any limits on the number of cannabis-related businesses, the staff report indicates that 34 applications have been approved and 18 more are in the pipeline.
So, there are probably more places to buy cannabis in Lompoc than there are places to buy bread and milk.
At the time the former city manager and police chief advised the council that there were advantages and disadvantages to allowing the industry to operate locally, and if they were to allow those operations, how to best administer and oversee those operations.
Their honest assessment of how the industry would impact city government was ignored.
On April 20 the City Council discussed various possible changes to the city’s cannabis regulations, which included a proposed new Cannabis Oversight Division.
The cannabis industry is unique in that the state requires the licensing authority (city of Lompoc) to conduct regular, detailed and labor-intensive oversight and annual renewal of licensees.
Oversight means hands-on audits of operations, site inspections and reviews of license applications. Some of this work is performed by consultants for the city and some by city staff.
The staff is proposing the addition of 10 new full-time employees and using consulting contractors at an annual ongoing cost of about $1,247,000 to monitor these and future licenses.
The staff report says: “It has become evident that a dedicated cannabis oversight division needs to be created to handle the large workload increase, and the needed oversight of the regulations on the cannabis industry.
“After working on numerous cannabis renewals, staff believes that there should be an annual license renewal with associated fees for each business to do the oversight that is required by the same departments that did the initial review of the application.”
The City Council periodically updates the Master Fee Schedule, and it would be appropriate to follow staff recommendations recommending an increase in license fees and deposits to pay for the additional costs of the Cannabis Oversight Division because of the unique audit requirements.
The fee would be variable based on the level of effort required for a specific business.
They then discussed the “tax-on-a-tax” issue. A request was made by cannabis dispensaries that the additional 6 percent sales tax they pay be shown as a separate item on the sales receipt. The issue would have to be placed on a future ballot because it was part of an earlier ballot measure passed by voters.
Of course, they could just put a sign at the cash register, but I guess that was too hard.
The city manager said the retailer currently passes this cost on to their customers without telling them. This is similar to many businesses that pass along charges by credit card companies, business license fees, tax they pay on materials, rental costs, utility costs, employee wages and benefits and other business-related expenses to their customers as part of the final product purchase cost.
Why the council would even discuss this isn’t clear with the exception that Mayor Jenelle Osborne said she had discussed this with industry representatives. If the council is discussing this issue for this business sector, why not for all business sectors? There are an infinite number of examples of “tax-on-tax” situations in many business sectors.
Not discussed in the staff report, but from remarks by Mayor Osborne, it was clear that if this issue were presented to voters, then part of the change could be to decrease or eliminate the 6 percent sales tax and add a manufacturing tax.
Maybe she doesn’t realize that retailers would just add this tax increase into the sales price like every other cost of doing business.
These issues will return to the council later with greater detail for a public hearing and action.
Other communities, like Guadalupe, who are currently considering allowing cannabis into their city should look at this example carefully — how much will it cost your city to support this industry?
— Ron Fink, a Lompoc resident since 1975, is retired from the aerospace industry. He has been following Lompoc politics since 1992, and after serving 23 years appointed to various Lompoc commissions retired from public service. The opinions expressed are his own.