To call this meeting of the law and legislation committee to order order.

Will the clerk please call a roll to establish a quorum?

Thank you, Chair.

Councilmember Gera.

Councilmember James?

Kaplan?

Here, Chair of Alan Zwilla.

I am here.

Vice Chair Jennings, since I saw you get your card out, would you like to lead us in the land acknowledgement and pledge of allegiance?

Those who are available to stand, would you please stand?

As we do the land acknowledgement.

Go ahead.

Okay.

This is in honor of Sacramento's Indigenous People's Tribe people and Tribal Lands to the original people of this land, the Nision people, the Southern Madhu, the Bally and Plains, the Miwok, and Patwin Patwinwenton peoples and the peoples of the Wilton Rancheria, Sacramento's only federally recognized tribe.

May we acknowledge and honor the Native people who come before us, who came before us and still walk beside us today on these ancestral lands by choosing to gather together in the active practice of acknowledgement and appreciation for Sacramento's Indigenous People's History, contribution, and lives.

Please join me in the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the Republic for which it stands one nation under God, indivisible, with liberty and justice for all.

Thank you.

And I'll note for those watching online that the vice mayor has joined us.

Good morning.

So we have one item on our discussion calendar today, which is the city cannabis business operations tax.

So while staff comes up to prepare the presentation, I just want to start with the brief framing comments, if I might take the liberty as chairs, you get ready.

Um, just to say that I appreciate all of the emails that we've all received over these last couple of days about the business tax in this space.

And I just want to say that today's discussion is about whether or not we are charging the appropriate tax rate for sustainable legal industry.

Um that's the conversation today.

And I appreciate that tax revenue is tied to a lot of really important things, of which I know I personally can speak for myself support.

But right now we charge cannabis 100 times what we charge any other business in the city of Sacramento, and they are charged double what alcohol is charged at the state level.

And so we have heard very clearly that we need to talk about whether or not this rate is strong enough as the right rate to support the legal market, because without a strong legal market, we will continue to see the illicit market thrive in Sacramento, and that is unacceptable on many, many fronts.

And what is happening right now is the legal market is unable to adequately compete.

And so that is the point of our conversation today.

I just want to frame in this way so that as people are coming up for public comment, I just want to make sure that we know that we the goal here today is to really talk about whether or not as a policy decision the tax rate for cannabis is appropriate or needs to be adjusted.

And I will remind folks from our last conversation that one where we left this is that you know we urgently need the federal and state government to take some action here.

Um we desperately need the federal and state government to take some action here.

This is part of why the cannabis industry is particularly impacted by the current regulatory environment.

And if at any point they do, we at the local level can decide to change again.

Um we have that flexibility within the four percent to say, hey, we're gonna change it one way, now we're gonna bring it back if we so to choose.

So we're not locking ourselves in here today to a ballot measure process or anything.

We're just talking about does it make sense to make an adjustment?

And if the state or federal government make changes, we can change again at the local level.

We have that flexibility, and so just want to continue to bang that drum and kind of tee us up where we left off at our last conversation, which is where we are starting the conversation today with the assessment that staff is bringing us.

So go ahead, Davina.

Um Program Manager for the Office of Program Office of Cannabis Management here in Sacramento.

Um I also want to let people know um, you know, I'm a regulator, tax is not my normal place where I live.

Uh so I didn't want to let the committee know that the director of finance can be available uh to answer any questions if if so desired.

So I think in any discussion of cannabis in California, as the chair and to uh said it is important to talk about the statewide cannabis taxes.

Um Prop 64, which was the ballot measure that looked at um having both adult use and medicinal cannabis along with regulatory programs throughout the state, established two state taxes.

One was a 15% excise tax, that excise tax would be floating and kind of change every year, adjust every year.

And then there was a cultivation tax on harvested cannabis as well.

AB 195, which was passed at the end of June in 2022, that was part of a budget bill that did eliminate the cultivation tax and it froze the excise tax tax for three fiscal years.

So we all know that sales are down in general, statewide.

The first two quarters of 2022 compared with the first two quarters of 2023 statewide show that both taxable cannabis sales and revenue are down.

You know, unfortunately, as we'll look at later with some of the examples, particularly San Francisco, it in a way it doesn't matter how much tax you have, you can have zero local tax, and we will not be competitive with the illicit marketplace.

The regulatory costs, the business costs, your payroll tax, these are all just expenses that unfortunately the illicit market doesn't have.

So I think it's important to note that at this point, and the state is certainly seeing their tax revenue go down.

What's interesting is we do contrast with the city of Sacramento, which have so far seen in the first three months of this year, this fiscal year seen our tax revenue actually be about $230,000 higher than last year.

So our business snapshot, we do have 288 approved business operating permits.

We have 77 pending applications.

In our analysis, we see that cannabis businesses are not closing at a higher rate than those of other small businesses on a nationwide level.

As I said earlier, our cannabis business operations tax has risen compared to the first three months of the last fiscal year.

And again, what we've seen again is that our 4% cannabis tax is competitive with jurisdictions in our region as well as other jurisdictions in the state.