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August 8, 2022

Cannabis Tax Sparks Up November Ballot

Dispensary possible further on down the road

This may be the year Healdsburg joins the rest of California in the pot revolution—for the purposes of city revenue at least. 

Currently, Healdsburg prohibits all commercial cannabis operations—making the city an outlier in an otherwise pot-friendly county. The city even banned medicinal marijuana dispensaries in 2007, and didn’t lift that ban in the wake of Prop. 64, in 2016.

“The city took the approach of ‘wait and see,’ and we are still in that mode,” said the city manager at the time, David Mickaelian, choosing to see how other cities in the county dealt with the new industry. 

But since late last year, Healdsburg has been doggedly engaged in an effort to update their cannabis policy with an eye toward possibly allowing cannabis-related business in town. 

An online survey conducted early in the year indicated a generally positive approach to cannabis among respondents. And at their June 16 meeting, the City Council discussed the most significant step yet in joining the cannabis revolution: adding a ballot measure imposing a special tax on cannabis operations inside city limits. 

First Meeting

The Nov. 18, 2021 work session meeting saw City Manager Jeff Kay present an overview of regulation, economics and community concerns about cannabis businesses. 

It amounted to an orientation to a complex topic for the council, then with five members, and it ended with broad support for cannabis business in town—including possible manufacturing—with an eye toward the revenue that business taxes might generate for the general fund. 

But as in many smaller cities, there was a great deal of hesitancy about allowing a dispensary—a retail distributor of cannabis—in the core business district. 

Said Councilmember David Hegele, “I don’t think it’s a fit for the Plaza, not from a visual standpoint… However, I believe that dispensaries are more destination retail,” meaning customers are more likely to drive up, pick up their purchase and leave—thereby taking up precious parking in the Plaza area.

“A better location for them is a shopping center, industrial area or something like that,” Hegele added.

Councilmember Oswaldo Jimenez voiced an even stronger objection to a downtown location.

“It’s really important for me that the Plaza and the downtown corridor is, you’ve heard me say it before, it is like Healdsburg’s living room. And so for me, it’s really important to make sure that families continue to feel welcomed in our downtown corridor and specifically the Plaza.”

The sentiment wasn’t fully shared by Councilmember Ariel Kelley, who asked pointed questions about manufacturing, testing, distribution and cultivation as well.

“I fully agree. It is like our living room, but at the same time, we have so many vacancies downtown… As far as the central downtown core, I’m open to the idea we could have something.”

The Survey

Out of that 2021 meeting emerged forward direction for Kay and city staff to continue developing  a cannabis policy. But first, a bilingual survey among residents about cannabis and its place in the city’s economy was commissioned, to add the voice of the community to the discussion. 

That survey ran from Jan. 28 to Feb. 11, and a surprisingly strong number of people responded, about 604, over 80% of whom were Healdsburg residents. 

Demographically, female respondents roughly outnumbered male 60-40, almost 50% were 60 and older, and about three-quarters identified as white.

The survey results (released at the May 2 city council meeting) showed majority support for having dispensaries and other businesses in town, as long as they were subject to caps on number and zoning limits, usually of 600 feet from schools and child care centers.

A more restrictive zoning model would also include other family facilities, such as churches, libraries and parks—and greatly reduce the number of commercially-zoned lots available for such a business.

But there was by no means universal support for cannabis businesses in town. The split was 55%-42% favoring commercial cannabis operations among survey respondents, not a very comfortable margin in such a non-scientific method of gauging public opinion. 

And in the question on imposing a tax on cannabis businesses, support fell short of the 50% mark.

Business Tax on the Ballot

That could be a crucial point, as on June 16 the council decided to put a measure on the November general election ballot that calls for “establishing a City of Healdsburg cannabis business tax at annual rates up to and not to exceed 8% of gross receipts for cannabis businesses, and estimated to generate approximately $500,000 annually in tax revenue.”

Erich Pearson, who heads a vertically-integrated cannabis company with three dispensaries in the county, was supportive of the ballot measure.

“Healdsburg is wise to pass a tax that gives the council flexibility to raise or lower these taxes.  I think this council gets the issue well, and I’m optimistic they’ll understand the need to keep the tax small to start.”

The idea of gaining up to half a million dollars annually for the general fund certainly had its appeal, but Kay cautioned that the number was “an estimate, a big round number,” but with a ton of uncertainty. 

“I don’t want to make a prediction on the tax measure,” said Kay this week. “Now that the council has voted to put it on the ballot, the City can only provide factual, non-biased information on it.” 

He encouraged two councilmembers to take up the task of writing the 300-word ballot argument in support of the measure, emphasizing that it must be “factual.” 

By establishing the general fund for the revenue, the non-specific taxation measure could be passed by a simple majority vote, rather than a two-thirds vote required if a tax is for a specific use. 

Kay also stressed that the ballot measure was a proposed tax, not a measure to allow or permit cannabis businesses to operate in Healdsburg. “That action would need to be taken by the City Council through the adoption of a cannabis regulation ordinance.”

This action creates the taxing mechanism so that the City can derive revenues from cannabis businesses if and when the City Council elects to permit and regulate them. That discussion, including a proposed model of cannabis business development for Healdsburg, is expected from the city manager in September. 

“We intend to return to council in September with a draft ordinance, although I do not anticipate a vote at that time. We’ll take direction and public input and make refinements from there,” said Kay. 

But don’t hold your breath. Even if the business tax measure passes, and the city council can agree on a model for a cannabis business in town that can pass through all the hoops a jurisdiction can erect—a task that can take over a year, judging by other county jurisdictions—it won’t be until 2024 at the earliest before a big green leaf emblem rises over a storefront, and the “Open” sign lights up.

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