Phoenix looks to tax medical-marijuana industry $50 million per year to fund public safety
Phoenix AZ October 2 2018 Phoenix is considering a massive tax on the medical-marijuana industry that could generate $40-50 million per year for the police and fire departments.
The tax, which would be charged to companies based on the size of each of their dispensary and cultivation sites, could cost some medical-marijuana distributors more than $1 million per year.
It would be the first tax of its kind in Arizona.
“We are desperate for money,” Mayor Thelda Williams said. “I’m not about to touch food tax, sales tax or property tax, so I need a whole new source.”
Phoenix has faced tough budget choices for the past several years, mostly due to ballooning public-safety pension costs. This year, the city must pay more than $225 million toward its pension debt.
The tight budget has limited the city’s ability to hire additional police officers and firefighters. Additionally, both the police and fire chiefs have told the council their departments need hundreds of millions of dollars in updates to buildings and equipment.
Williams is proposing the tax plan in hopes that tapping into the multi-million-dollar medical-marijuana industry will allow the city to fill the budget gaps in the police and fire departments — and she isn’t wasting any time in trying to push it through.
She is bringing the tax directly to the full council instead of the more common practice oftaking it to a council subcommittee first, leaving some in the industry blindsided and concerned about the potential financialhit.
“They’re trying to balance the budget on the backs of our patients,” said Bill Abbott, senior vice president of the southwest region for MPX Bioceutical Corporation.
Ryan Lewis of one the employee of Mohave Green’s Choice Cannabis indoor grow operation, located at undisclosed location in Mohave Valley a spans 14,000 square feet across two levels. He also has rooms for trimming, harvesting and packaging. He said his operation can produce about 2,500 pounds each year. Nick Oza/The Republic
How will it work?
Arizona voters legalized medical marijuana in 2010 and the industry has boomed ever since.
Phoenix will consider a handful of tax options, but the preferred option is crafted as an annual license tax based on the size of each marijuana cultivation site and dispensary.
The Arizona Republic requested a list of dispensaries, cultivation centers and their square footage, but officials in the mayor’s office did not immediately provide the information.
The proposed tax rate is $50 per square foot for a cultivation and infusion site and $280 per square foot for a dispensary or lounge.
Phoenix caps dispensary size at 2,000 square feet, which means that the largest dispensaries would pay $560,000 per year.
Cultivation and infusion sites are traditionally much larger and couldbe required to pay $1 million or more based on the proposed tax model.
The money would be designated for public safety, but the council would decide specifically how the money should be spent during the budget process.
Abbott operates a 22,896-square-foot cultivation site in south Phoenix.
If the tax passes, his bill will be $1.14 million, plus another $560,000 for his north Phoenix dispensary.
He said the tax may put some dispensaries out of business, which will make it more difficult for patients to access legal marijuana.
“It will also decrease patient access, which could possibly increase black market activity. It’s totally counterproductive,” Abbott said.
Bill Gibbs is the co-owner of Urban Greenhouse, a 2,000-square-foot dispensary in Phoenix, which would also face a $560,000 tax.
He said businesses could be forced to raise prices for customers to make up the cost, possibly pricing some customers out of the legal medical-marijuana market.
His cultivation center is in El Mirage, but he said that if Phoenix succeeds with the tax, every city in the state will do something similar.
“There will be no place to hide. All patients will be affected,” Gibbs said.
Why is the city choosing to tax medical-marijuana facilities to support public safety? That depends on who you ask.
Bryan Jeffries, the mayor’s chief of staff and president of the statewide firefighter union, said the Professional Fire Fighters of Arizona has researched the impacts of medical and recreational marijuana in Denver and believes that the industry could put a drain on public-safety resources.
He said officials in Denver have seen a rise in burglaries, homelessness, fires and children mistakenly consuming marijuana.
He did not have data showing similar trends in Arizona — where recreational marijuana is not legal but pointed to some individual issues, including a fire at a dispensary earlier this year.
“We haven’t been in this business very long, so we don’t have years of data. But we’re starting to see an uptick in these issues,” Jeffries said.
For Williams, it’s less about the safety concern and more about revenue potential.
She said she has a cousin in Denver who told her how much the city was bringing in through taxes on marijuana dispensaries.
“I thought… why not Phoenix?” Williams said.
Denver has a 3.5 percent special sales tax for customers who buy recreational marijuana. It does not have an extra tax on medical marijuana.
Matt Lascala, the head of cultivation for Huxton, gives a tour of the company’s cultivation facility on Oct. 31, 2017 in Mesa. Thomas Hawthorne/The Republic
Jeffries said he met with several people in the industry in the past few months to discuss the tax.
But many dispensary owners and operators said they only began hearing rumblings about the tax in the past week and didn’t know any details until the city posted the Oct. 2 council agenda online late Thursday.
“I really think the city needs to dust off the old transparency playbook and do things the right way,” Abbott said. “It’s like a surprise attack.”
Abbott said he is a member of the Arizona Dispensary Association and several of his fellow operators were also blindsided by the announcement.
“This is an ambush to try to ramrod this thing through so that nobody knows about it and then all of a sudden it’s just law,” Gibbs said.
Traditionally, a proposed policy change would go to a council subcommittee for a public discussion and review before it would come before the full council.
Williams said she felt the change could go straight to the full council for discussion. She said Tuesday’s vote will start a 60-day notice process. She said she plans to have a public hearing about the tax before the Dec. 11 final vote.
“My time is very limited as mayor. It could be over in a month and I am moving as fast as I can with my priorities,” Williams said. “Anybody that knows me knows I like to stir the pot and get things done.”
Williams is the interim Phoenix mayor. The mayoral election is in November, but a March runoff is expected.
An Arizona Supreme Court ruling overturned a 2012 law passed by the Legislature that barred cardholders from possessing and using marijuana on public college campuses Isabel Greenblatt, The Republic | azcentral.com
The research into this proposed tax began long before Williams took over as interim mayor at the end of May.
Jeffries began working on the tax about a year ago with the Professional Fire Fighters of Arizona.
They commissioned a public-opinion poll on the topic earlier this year that showed 60 percent of likely Phoenix voters were in favor of taxing medical marijuana facilities for public safety, according to pollster Mike Noble of OH Predictive Insights.
The firefighter group also worked with outside law firms and policy researchers to craft the new tax structure that is now going before the council.
Jeffries said the union was motivated to research the funding idea because it is concerned about officer and firefighter shortages and response times to emergency calls in Phoenix.
Arizona voters approved the state’s medical-marijuana program in 2010, and ever since lawmakers have sought to change it. From plans to legalize it for recreational use to banning it on university campuses, the Legislature has made debating medical-marijuana a nearly annual tradition. Here is a look at some of those proposals. Jack Kurtz/The Republic
One of those outside law firms that helped craft the tax proposal was Snell & Wilmer, a prominent Phoenix firm that has also represented medical-marijuana dispensaries.
Nick Wood, who works for the firm, has represented dispensaries in the past. But earlier this year, he represented multiple individuals who claimed to be opposed to medical marijuana facilities locating in their neighborhoods.
Wood represented these individuals in cases that came before Phoenix’s Board of Adjustment — a volunteer board that hears disputes about zoning cases. Jeffries was a member of that board until June.
Attorneys opposing Wood’s clients alleged that elements of his cases were fraudulent and attempted to help certain dispensaries while keeping others from opening. The city launched an investigation but has not yet publicly released any findings.
Jeffries said Wood hasn’t been “heavily involved” in crafting the tax strategy but “he’s given some advice.” Jeffries said he mostly worked with a different attorney at Snell & Wilmer.
Another person involved in the Board of Adjustment turmoil earlier this year — lobbyist Joe Villasenor — also talked to Jeffries about the tax plan before it was publicly released, though Jeffries said Villasenor was not involved in crafting it.
“Because he knows about the industry, I’ve asked him some questions,” Jeffries said. “He’s kind of helped me understand who the players are.”
Jeffries said there was no connection between the Board of Adjustment allegations and the tax plan.
“There’s just no there, there,” Jeffries said.
Williams said that if Villasenor or Wood have been involved, she has not been party to the conversations.
AZCentral
