Grover Beach plans to attract more businesses with reduced cannabis tax

California has made it legal to use marijuana for recreational purposes, but cities are struggling to attract businesses without high taxes on cannabis. Grover Beach is one of the first towns taking action by cutting their tax rate in half and following this move with a larger business attraction campaign targeted at attracting more cultivation facilities, manufacturing companies, dispensaries, testing labs and other related businesses.

The cost of growing and selling marijuana in Grover Beach is going to become more affordable, due to a recent reduction in the commercial cannabis tax.

At its Oct. 25 meeting, the Grover Coastal City Council overwhelmingly approved the proposal to recruit cannabis-related enterprises to the beach town. Since its first legal marijuana shop launched in May 2018, Grover Beach’s cannabis sector has been growing. Cannabis sales brought in $2.4 million to the city in fiscal year 2020-21. It’s a significant increase from the $16,359 produced by the young sector in its first year.

  • Dylan Honea-Bauman contributed to this file photo.
  • BOOM IN BUSINESS Grover Beach’s fledgling cannabis sector may have only made $17,000 in its first year, but it currently brings in $2.4 million.

The sector accounts for 15% of the city’s general fund income, making it the city’s third biggest source. Grover Beach currently has 29 licensed cannabis companies, 12 of which are open for business.

At the meeting, Grover Beach City Manager Matthew Bronson stated, “We’ve continued to be conservative with these revenues because it’s a new business with tremendous unpredictability as we move ahead.” “For us and other communities, the illegal underground economy still has too much power.”

As a result, the council advised that the funds be used only for one-time reasons such as paying down pension commitments.

Grover Beach’s retail, manufacturing, distribution, and testing tax rates, according to Bronson, are generally lower than the average rate of 35 nearby municipalities. However, its distribution tax rate of 3% is greater than the 1% rates in Santa Barbara County and Carpinteria, as well as San Luis Obispo County (2 percent).

Higher distribution taxes might deter prospective firms, resulting in a revenue loss for the city, according to Bronson, who also said that manufacturers and retailers would pick lower-cost distributors. The tax rate influences the cost in part.

“Even if a distributor is near by, if the tax is greater, they may utilize someone [else] who is substantially further away,” he remarked during the meeting. “Distribution is a critical middle ground,… it’s a keystone for our business,” says the author.

Based on this discovery, municipal officials advocated a “tiered rate” system, in which distribution charges for Grover Beach’s cannabis companies drop from 3% to 2%. Clients of enterprises with yearly gross revenues of more than $10 million would pay a 1% distribution tax reduction. They would also benefit from a drop in the manufacturing tax from 3% to 2% for higher-level enterprises. The total rate of lab testing would drop from 3% to 1%.

Bronson informed the council that the staff didn’t want to make the tax scheme too complicated.

“Our tax system is simple to comprehend, consistent, and you know exactly what you’re receiving based on our tax rate,” he said.

The increased tax rates are expected to result in a $70,000 loss in cannabis income, but city officials is convinced that it will result in a “undetermined rise from new companies.”

Karen Bright, Mayor Pro Tem, said it was critical for the city to keep its tax rates competitive.

“It will benefit not only the city, but also companies that will hopefully come join our community in the long term,” she stated during the meeting.

Grover Beach’s present cannabis earnings would be used toward infrastructure improvements.

“The increased revenues from cannabis taxes, as well as the additional 1% sales tax approved by voters in 2020, will allow us to complete more capital projects, such as major street repairs and sidewalk improvements, as well as improve our services, such as adding police officer positions,” Bronson told New Times.