Desert Hot Springs is giving local cannabis cultivators a tax reduction for the first six months of the year.
The Desert Hot Springs City Council approved an ordinance that temporarily lowers cultivation taxes by 50% with a 4-1 vote on Tuesday. Councilmember Jan Pye was the dissenting vote. The council had voted in support of this temporary reduction earlier this month, with Pye again being opposed. It was brought forth as an ordinance to be able to enact the change in tax rate.
Cultivation taxes are due in July and will be lowered from $10.20 per square foot to $5.10 per square foot. Its expected to cost the city $1,167,892 in revenue, but this loss will be covered by a balance of over $5 million in the city’s “Cannabis Emergency Reserve.”
Cannabis business owners have shared a number of issues ailing the industry, including competition with a cheaper black market and high taxes. Other Coachella Valley cities like Cathedral City and Palm Desert recently lowered their cannabis taxes as a result.
“The industry as a whole is experiencing substantial financial strain, and staff has heard from several of our Desert Hot Springs operators that they are now at a critical point of considering possible closure should the current market conditions persist,” said Sean Smith, the city’s economic development director, on April 4.
City staff is also researching the cannabis industry to make recommendations on what other changes the city can make to help local businesses financially, which could possibly include a permanent tax reduction.
Councilmember Russell Betts said the temporary reduction is necessary but the city needs to look at making it permanent or even eliminating it.
“These excessive taxes on this industry are putting a lot of jobs at risk … we need these jobs, really, the livelihood of our residents is dependent on (in) large part these employers who are employing many, what thousands of people now,” he said. “It’s critical that we take this up sooner than later.”
In response, Mayor Scott Matas said the council directed city staff to do an analysis on how tax cuts will impact the city and the goal is for them to present it before the next tax period.
Pye was the only councilmember opposed to the 50% reduction. She supported a temporary 25% reduction during the council’s April 4 meeting and wanted to look at city staff’s analysis before possibly making bigger changes.
“It’s only temporary for this time because we recognize that you’re not doing well. We recognize that,” Pye said earlier this month. “But on the other hand, staff is going to do a comprehensive analysis to find out exactly where we should be.”
The ordinance will return to the council for a second reading and adoption on May 2, according to City Clerk Jerryl Soriano.
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