Tag Archives: Cannabis

Fiscal impact of marijuana bill on cities, county unknown

When Josh Zetzsche testified before the Port Orchard City Council recently, urging the council to repeal its emergency moratorium on medical marijuana dispensaries, one of his arguments was the idea that the city may be missing out on a potential revenue source.

“To just stick our heads in the ground is just going to perpetuate a black market. It’s already going on, is what I’m saying. Let’s regulate it. Let’s collect taxes for it.”

According to the state’s Office of Financial Management, the fiscal effect of the most recent version of the bill on counties and cities is “indeterminate.” Washington Office of Financial Managment Analysis

SB 5073 seeks to clarify rules about the use of medical marijuana, which has been legal in Washington State for a couple decades. The bill would establish a system whereby the state’s Department of Health and Department of Agriculture would jointly oversee regulation of licensed dispensaries and their products, as well a voluntary registry for authorized patients.

The bill calls for establishing fees and fines, and certain state and local taxes would apply. But according to Port Orchard Treasurer Allan Martin, “The emphasis in the bill is in recapturing cost, not a revenue source.”

Martin cited an analysis of the fiscal impact of the bill by the state’s Office of Financial Management, which shows that revenue from fees will go to fund a total of 16 full-time-equivalent employees in the 2011-2013 biennium. The number of state employees would increase to 68.5 in 2015-17.

The state would undertake a rule-making process during 2012 to establish the details of how medical marijuana regulation would be accomplished. This process would involve public hearings on the East and West side of the state on what OFM officials expect will be a highly “controversial” topic. The bill calls for a cost-benefit analysis by the Washington Institute for Public Policy in 2014.

For now, some general assumptions have been made.

The state’s business and occupation (B&O) tax would apply to the manufacture and sale of cannabis products, and cities like Bremerton that have a B&O tax would charge it. But the growing, harvesting, and selling of cannabis at wholesale by the grower is exempt from B&O tax.

Retail sales of cannabis and cannabis products would be subject to retail sales tax. However, Martin notes, prescription drugs are exempt from retail sales tax. What’s not clear is how the state will/would classify medical marijuana products for tax purposes. Right now the manufacture and sale of medical marijuana products is subject to sales tax.

Cities would charge business licenses, but that wouldn’t be any windfall. The average license fee statewide is $43.40 per year.

Based on data on medical marijuana from California and Colorado, Washington State officials expect the number of dispensaries statewide to be about 250 during 2013, the first year the new laws would be implemented. That number would increase each year, topping out at 1,000 in 2017, when most license applications would be renewals.

Likewise, the forecast for numbers of registered patients ranges from 18,000 in 2013 to 68,429 in 2017.

Despite these projections, the actual revenue from sales and B&O taxes is not specified in the OFM document, which states, “Because the total revenue is not known, and it is not known what percentage of producers, processors, and dispensers would be within the B&O taxing districts, it is not possible to accurately predict the revenue impact to local government as a result of the bill.”

Here’s what the document has to say about how the bill could affect cities and counties.
“Cities: Indeterminate cost savings as well as additional expenditures related to costs for law enforcement staff to follow the provisions of the bill.
Counties: Ditto”

Here’s more from from the OFM’s analysis (remember this document gets revised as the bill is amended).

The state business and occupation (B&O) tax applies to the manufacture and sale of cannabis products. The growing, harvesting, and selling of cannabis at wholesale by the grower is exempt from B&O tax. Retail sales of cannabis and cannabis products are subject to retail sales tax. *

II. B – Cash receipts Impact
Briefly describe and quantify the cash receipts impact of the legislation on the responding agency, identifying the cash receipts provisions by section number and when appropriate the detail of the revenue sources. Briefly describe the factual basis of the assumptions and the method by which the cash receipts impact is derived. Explain how workload assumptions translate into estimates. Distinguish between one time and ongoing functions.

Sections 702 & 901: Allow the Secretary of Health to establish and charge fees to adequately recapture the cost to the state of implementing, maintaining, and enforcing the provisions of each section. Fees will be established starting in fiscal year (FY) 2013 to cover the costs of implementing and administering this new program. While individual fee levels will be determined during the rules process, total collections over time will balance with expenditures. For fiscal note purposes, DOH estimates that five percent of the operational costs for the registration system will be attributable to law enforcement agencies’ queries. In addition, the method for developing the range of classes for dispensaries, registration applications, and access to the registry information for law enforcement will be established during the rulemaking process. The number of payers for dispensary licensing is estimated, using the states of California and Colorado and the current number of dispensaries advertising in Washington, as follows:

Briefly describe and quantify the revenue impacts of the legislation on local governments, identifying the revenue provisions by section number, and when appropriate, the detail of revenue sources. Delineate between city, county and special district impacts.
The legislation would have an indeterminate impact on city revenue. WSDA assumes that 1,000 producers and 200 processor establishments will apply for licenses in FY 2013. According to the Association of Washington Cities (AWC), the 39 cities in Washington that assess Business and Occupation (B&O) taxes would be able to collect these taxes from producers, processors, and dispensers. The Department of Health (DOH) estimates that 250 dispensers will apply for licenses. DOH assumes this number will increase over the following three years, to
approximately 476 new applications in FY 2016, with a total of 1,000 or more dispensers operating. The average tax rate is .0019 for both manufacturing and wholesale products, and .002 for retail. Because the total revenue is not known, and it is not known what percentage of producers, processors, and dispensers would be within the B&O taxing districts, it is not possible to accurately predict the revenue impact to local government as a result of the bill.
Sections 704 and 705 direct that dispensers must be licensed by the cities and counties in which they are located. Approximately 200 cities (80 percent) require businesses to obtain a standard license for a fee, according to the AWC. Of these, 65 percent charge a flat fee, and the average flat fee or initial business license fee is $43.40. The Washington State Association of Counties estimates that counties would assess standard licensing fees, adequate to cover the associated costs.

Department of Agriculture
Washington Association of Sheriffs and Police Chiefs
Pierce County
Washington State Association of Counties
Association of Washington Cities
Department of Revenue

Marijuana dispensary hoping to set up shop in Port Orchard

The day after an article in the Kitsap Sun reporting that Port Orchard is considering a moratorium on medical marijuana dispensaries, Dave Norton was in a quandary.

Norton, former owner of medical marijuana dispensaries in Key Center and Tacoma, was getting ready to set up shop at the Bayside Plaza in downtown Port Orchard. He’ll take the keys to the leased storefront on Saturday.

Norton asked me what the moratorium could mean to his budding business. Should he move forward with his plans? What are his options? What’s the chance dispensaries will ever be allowed in the city?

Norton said he just wants to help people who have health problems and can find no relief elsewhere. The organization NORML, which seeks to legalize marijuana, lists 19 clinical indications for medical marijuana, from Alzheimer’s, ALS, chronic pain and diabetes, to Rheumatoid arthritis, sleep apnea and Tourette’s syndrome.

The drug is not without side effects and risks, including the possibility of addiction and negative effects on the heart, lungs (if smoked) and impairment of activities of daily living, according to the National Institute on Drug Abuse.

There are implications for mental health as well. According to NIDA, “A number of studies have shown an association between chronic marijuana use and increased rates of anxiety, depression, and schizophrenia.”

No doubt marijuana is powerful medicine, say proponents. But testimony from some who commented on the Kitsap Sun’s story indicate that, at least in some cases, it provides significant relief, where traditional prescription drugs have not, and with fewer side effects.

“Marijuana has replaced the psychotropics, and most of the pain meds and the muscle relaxers. … No more zombies,” wrote robodrill, whose wife has cancer and whose two sons are “wounded warriors.” “I have my wife back, and my sons are no longer the victims they once were, they have some pride back.”

Norton’s intention is to provide a “clean, neat, organized” facility where authorized patients can safely obtain the drug.

“We want people to realize this is going to be very, very professional,” he said.

And discreet. No tacky signs looking like something out of the 1960s. Even the name will be discreet: Bella Oha, meaning “beautiful leaf.”

Norton’s former business was “Green Health.” He shut it down after employees left in change while he recovered from a heart attack engaged in less than professional activities. Norton, with about 1,000 clients and a new partner, wants a fresh start in a new town. But since announcement of the pending moratorium, he’s wondering about the odds he’ll be able to do so.

City officials on Tuesday had plenty of questions of their own. What does the current city code say about dispensaries? Can they deny someone planning one a business license if they apply before the moratorium is formally enacted? Would this open the city up to a lawsuit? And how would the passage of a bill on medical marijuana currently before the state Legislature change the rules?

City code as it stands would allow dispensaries, and other jurisdictions, including Port Angeles, have allowed them. A business license was issued to one dispensary there, and the Port Angeles police won’t intervene unless a violation of the law is called to their attention.

But Port Orchard Police Chief Al Townsend is clear that, in his book, dispensaries are illegal — at least for now — and in his town they’ll be shut down. Townsend on Thursday issued a statement (complete text below), saying, “While the laws clearly need clarification for both those using it and those enforcing it, in my opinion it still is clear that dispensaries are not legal,” he said. “If one of the dispensaries opens in the city, I’m 100% sure we will take enforcement action, unless the law changes in the mean time.”

That could change with the passage of SB 5073, which calls for clarification of the rights of medical marijuana patients, as well as ways to track and regulate legal use of the drug. Hence the discussion of the moratorium. Townsend advised the city council to take a stance that will clearly spell out the city’s policy on dispensaries, at least until they know the fate of the bill.

Until the moratorium formally passes the council, anyone seeking to operate a dispensary could apply for a business license. But City Attorney Greg Jacoby said that the city would be within its rights to deny a license to such a business — even though current code allows it — based on the chief’s interpretation that it is illegal.

In doing so, however, Port Orchard could be opening itself up to the kind of controversy that occurred in Tacoma, when the city tried to revoke the licenses of eight dispensaries. The Tacoma City Council agreed to wait on enforcement until the fate of the bill is clear, after protesters descended on city hall.

The moratorium is not on the council’s agenda for Feb. 22. Norton will be there to state his case.

Take the poll on the Kitsap Caucus homepage: Do you favor or oppose passage of SB 5073, “concerning the medical use of cannabis?”
Chief Al Townsend’s statement on medical marijuana dispensaries, Feb. 17, 2011:

While the laws clearly need clarification for both those using it and those enforcing it, in my opinion it still is clear that dispensaries are not legal. One patient, one caretaker or grower. That’s how I see it. I believe that’s how the prosecutor feels about it.

If one of the dispensaries opens in the city, I’m 100% sure we will take enforcement action, unless the law changes in the mean time.

If the law does change to legalize dispensaries, my biggest concern was how the city was going to regulate where they would be located. It appears now that the city will create a moratorium on the facilities until such time as they can sufficiently study that issue. I think that’s a really good idea.

What I find most interesting about this is……..if people really want to have options for medical marijuana, why not regulate it and dispense it through the facilities that already exist……..pharmacies. It would seem natural to do so in this way to help ensure compliance with the laws that they already have to follow. The facilities are professional and clean and already located around the community. Seems like the best way to do business. Let Pfizer and the other drug companies market it!

Alan L. Townsend
Chief of Police
City of Port Orchard
546 Bay Street
Port Orchard, WA 98366
(360) 876-1700 FAX: (360) 876-5546