After a few owners of local cannabis businesses spoke about their struggles to remain viable in a saturated and increasingly competitive market, the Palm Desert City Council agreed Thursday to cut some of the industry’s taxes.
The council’s unanimous vote comes as other cities in the Coachella Valley, including Cathedral City and Palm Springs, have discussed how to ease the economic burden that cannabis business owners say they’re facing as the number of competitors has grown but overall sales have gone down.
Starting March 1, Palm Desert will reduce its taxes on cannabis cultivation from $13 to $10 per square foot, while its tax rate on retail and delivery sales will be cut in half, from 10% to 5% of gross receipts. The changes are similar to ones the Cathedral City Council is expected to consider next week.
Before voting Thursday, the Palm Desert council heard from several owners of local dispensaries, the first of which began operating in 2018.
While Palm Desert has limited its number of cannabis permits, allowing six dispensaries and just a couple cultivators and manufacturers, there are approximately 207 other cannabis operations — of which roughly a third are storefront dispensaries — in the Coachella Valley and nearby unincorporated areas, according to the city’s 2022 Cannabis State of the Industry report.
Pointing to that market saturation and other factors, a handful of cannabis store owners spoke Thursday of the declining retail sales revenue they’ve seen lately, with some estimating declines between 20% and 40% compared to a year earlier.
“I don’t want to stand here and paint a bleak picture — but it’s bad,” Paul Cotterell, general manager and co-owner of The Leaf dispensary on El Paseo, told the council. “We’re at a point that there is no profit to be made in the cannabis industry.”
The city-led report, which first prompted the council to explore lower tax rates, also cites even more competition that’s coming soon. Indio, the valley’s largest city, is reviewing applications now for its first cannabis businesses. And Riverside County recently approved new dispensaries set to open in unincorporated areas just a few blocks down the road from Palm Desert.
Previously, Palm Desert’s 10% tax rate on cannabis sales placed the city on the high end locally, the same as Palm Springs, Desert Hot Springs and Cathedral City. All four of those cities saw drops in tax revenue from cannabis sales between 2020-21 and 2021-22, the Palm Desert report found.
Kenneth Churchill, CEO of the valley-based West Coast Cannabis Club, told the council the 10% rate was “forcing customers to drive across (Interstate 10) to go to country dispensaries, who do not pay a local tax.” Both he and Cotterell also noted other barriers facing local owners, such as marijuana’s federal status as a narcotic drug and the challenges that creates to get financing from banks.
“While you are not responsible for all of these hurdles, over-taxing us while we are already so heavily handicapped has created a situation where it is almost impossible for us to succeed,” Churchill said.
The council was largely sympathetic to the business owners, who also described a surging black market for cannabis in California — an issue that, for some council members, added to the reasons to favor a tax cut.
“If you don’t know where it’s growing and where you’re getting it, you are subject to pesticides and, sadly, fentanyl,” Mayor Pro Tem Karina Quintanilla said. “I think that we have to look at how we can support our businesses, but also public health by making sure that our customers have a safe place to acquire (cannabis), whether it’s recreational or medicinal.”
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